This isn’t an apology for banker’s bonuses but I hope it gives an insight into why the bonus culture exists and persists.
As I drove out of the car park of my son’s posh school in South West London, my thirteen year old commented
Dad you are such a loser – why don’t you drive an Aston Martin?
I did the only appropriate thing, cuffing him round the ear and telling him not to be such a spoilt brat.
In his part of the world, you are the school you send your children to, the car you drive, the house you mortgage , the lifestyle you display. To do the package properly you need to be earning upwards of £200,000 pa
It’s hard to escape the conclusion that the Reward policy of many of the City‘s financial institutions is designed to keep senior executives in this lifestyle package. Any reduction in annual reward would be considered an affront to the exec’s self-esteem. In practice the club is self-perpetuating as successive Government’s are finding out.
Some argue that the level of pay and bonuses meted out to those is criminal – but it appears at first sight a victimless crime. To some extent this because the way financial services work is far from transparent. Money is earned on a “basis-point” basis. A basis point is 0.01% of the value of a transaction. Such fractional margins may seem small but when the values in question run into billions, a basis point becomes a large amount. The combined impact of several transactions pays the salaries but at the expense of the ultimate consumer – those who bank, save and borrow.
It’s important that people understand that these little clips add up. A few years ago it was seen as a “good thing” that the maximum basis point charge for a personal pension was 100. Today people can buy a pension where the charge is a tenth of that – 0.1%pa. If you could improve the fuel-effeciency of your car from 5 mpg to 50 mpg , you’d be feeling pretty happy and the lucky employees of Logica who get a pension at a tenth of the retail price should be feeling pretty lucky too!
Now you might be asking why one personal pension might charge ten times more for a roughly equivalent product than another. Returning to my original theme, it’s because rather than feeding Fat Cats, Logica has chosen to cut out all the unneccessary basis point charges and deliver its employees a hugely efficient savings vehicle.
No advisers, no active fund managers, no manual administration, no marketing fluff.
Anyone who has been to Twickenham/Wembley/Wimbledon recently will have seen the massive spend on corporate hospitality, this is marketing fluff and most of this is coming from financial services companies.
Anyone who walks around the West End or City will notice that the finest buildings and most expensive restaurants are occupied by the financial services organisations whose services we purchase.
The chances of getting Fat Cats to diet are zero . But it is a function of capitalism that market forces will eventually redress the balance. The ultimate market force is consumerism and when consumers of financial services choose not to feed the Fat Cats, then they will slim.
- A Christmas message of hope for your pension (henrytapper.com)
- Your New (Biased) Leaders of Congress, 2011 Edition (esquire.com)
- Pensions in the UK face fat-cat fees that could reduce the sixe of a pension by a third (dailymail.co.uk)
- Staff turnover at Logica on the rise (ft.com)
- RPT-Enterprise Products to issue $1.5 bln debt – IFR (reuters.com)
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