Bonuses: worse than useless

There’s something very satisfying about seeing other people come round to your way of thinking. (See my previous blogs 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.

“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.

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.