Over the last few weeks or so, the topic of bankers’ bonuses has featured heavily in the press in two different contexts. Firstly, the British Chancellor, Alistair Darling, levied a one-off tax on bankers’ bonuses of 50 percent in his pre-budget report. This tax applies to banks operating in Britain and to their British-based employers. Bonuses of £25,000 (approximately $40,000 US Dollars) or more are to be put into a pot for each bank and that part will be taxed at 50 percent.
Secondly, the topic of bankers’ bonuses was featured in a proposal by the Basel Committee on Banking Supervision. This committee is reviewing the rules governing bank’s strengths and is proposing that banks will be blocked from paying dividends or bonuses if their capital levels fall below a minimum threshold.
Bankers are crying “unfair” and accusing the Government of being short-sighted, whereas Alistair Darling received widespread public support for his banker tax. The level of public angst is high due to footing an enormous bill for bankers’ excessive risk taking. According to the National Audit Office figures, the Government (aka the tax payer) has so far spent £117 billion pounds (approximately $189 billion US Dollars) to rescue the banks.
From a strategic point of view, this fractious relationship between bankers and Government requires addressing in order to avoid future cycles of banker punishment (the equivalent of a public flogging, cheered on by the crowds!), and banker resentment, followed by banker inventiveness to escape intended financial levies. And it seems that there are many different views between Government and the Banking community that need to be reconciled covering bank lending policy, capital reserve levels, splitting out retail banking, basis for remuneration etc.
So what might help? Well, in situations with multiple and conflicting views a useful starting point is to step back and seek strategic clarity of organisational purpose, from which measures of success can then be derived. This starts with identifying the main beneficiaries, and potentially several types of beneficiaries. Once there is agreement about who the beneficiaries are, the next step is to identify what they want or what they value from the organisation. Guided by clarity about who the beneficiaries are, and what they value from the organisation, we can then try to work out the role of other “stakeholders” in delivering beneficiary value. Note this is quite different from an approach which tries to incorporate all stakeholders and their interests in decision making. More often than not, identifying several types of beneficiaries implies that the organisation should be restructured so that each sub-unit can focus on just one beneficiary group.
Adopting the above approach may at least help to surface the fundamental issues in the banking sector concerning core purpose, and what banks should be delivering. Strategic clarity should enable individuals to take on the complex task of strategic leadership, and help today in choosing among alternatives courses of action. Without strategic clarity, there is unlikely to be agreement among the key parties on benchmarks for performance linked to justifiable banker bonuses for some time to come.
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