Merryn's Blog

Bonuses: worse than useless

The idea that bonuses make people work harder is nonsense, says Merryn Somerset Webb. They have little positive effect, but an almost infinite number of negative effects.


There's something very satisfying about seeing other people come round to your way of thinking. (See my previousblogs on why bonuses make CEOs worse at their jobs, and the myth of 'talent', for example.)

So we were thrilled to see Deutsche Bank's John Cryan make the point that bonuses in the banking sector are both out of control and entirely unnecessary.

Subscribe to MoneyWeek

Become a smarter, better informed investor with MoneyWeek.

"I have no idea", he said, "why I was offered a contract with a bonus in it, because I promise you that I will not work any harder or any less hard in any year, in any day, because someone is going to pay me more or less."

That's exactly the right point to make on this subject. Pay is too high overall, and the idea that (usually badly structured) bonuses make people work harder is nonsense.

Advertisement - Article continues below

However, we are less pleased by Mr Cryan's second point. He has, he says, never understood "the way additional riches drive people to behave differently." I think he might need to think on that a little more.

Because while bonuses don't make people work harder, they do make them work in slightly different (less straightforward) ways, as they strive to hit whatever silly targets their relativity-obsessed remuneration committee has put in their contract.

Bonuses have little positive effect but, depending on their structure, they can have an almost infinite number of negative effects.


Most Popular

UK Economy

Britain has a new chancellor – get ready for a major spending splurge

The departure of Sajid Javid as chancellor and the appointment of Rishi Sunak marks a change in the style of our politics. John Stepek explains what's…
14 Feb 2020

Money Minute Friday 14 February: The latest from RBS, Britain's state-owned bank

Today's Money Minute previews results from RBS – Britain’s state-owned bank – and from pharma giant AstraZeneca.
14 Feb 2020
Silver and other precious metals

You should all own some silver. Just don’t expect it to make you rich

Silver is cool, beautiful and immensely useful. But for investors it's the most frustrating of metals. Dominic Frisby explains why you should own some…
12 Feb 2020

Is 2020 the year for European small-cap stocks?

SPONSORED CONTENT - Ollie Beckett, manager of the TR European Growth Trust, on why he believes European small-cap stocks are performing well.
12 Feb 2019