Saturday, December 25, 2010
political hauntings in the tale?
Have I just been unobservant in previous years, or has there really been a glut of 'Scrooge' stories this Christmas TV season? Over the last three days at least seven or so versions of The Redeeming Three Hauntings, have been screened, from the muppets right through to Dr Who.
Have the schedulers all chanced on the same thought, making a comment that with the economic squeeze in progress we are having a dickens of a time?
Have the schedulers all chanced on the same thought, making a comment that with the economic squeeze in progress we are having a dickens of a time?
Labels: Christmas, recession, Scrooge
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Friday, December 04, 2009
The Bonus fallacy and tournaments
Most people, I suppose, think of a ‘bonus’ as something extra. A pay ‘bonus’ in this definition means something earned by ‘defined exceptional circumstances’ – not something paid over as routine. So good work, increasing efficiency, improved customer satisfaction – all the might earn a bonus.
The ‘Financial Sector’ likes to claim that their ‘bonuses’ are just like this, a kind of posh term for ‘payment by results’ or ‘piecework rates’. This may be the kind of hot air that suggests the collective noun ‘a Wunch of Bankers’.
The reality may be the ‘Tournament System’ so ably described for lay readers in Tim Harfords book ‘ The logic of Life’. Specifically the chapter on ‘why your boss is overpaid’.
This is how I understand Harford’s argument.
Basically most jobs cannot easily be assessed by performance by results. And jobs that involve handling big flows of money are difficult to constrain in the public interest. So what happens is a pay system analogous to a top tennis tournament. The winner, the champion, the chair of the Board, is guaranteed a huge wad of cash. Second place wins much less but still a worthwhile consolation. The aim though is to inspire the twenty or so people in the immediate lower tiers to work their socks off in order to make the organisation work. They need to be guaranteed enough money not to be seduced into rival tournaments. In turn this premier league gives incentives for a strata of much less well paid potential contenders, the people who may actually create the wealth for the organisation if wealth creation is part of the deal.
It is actually irrelevant whether the people getting the top prizes are competent or even active in the organisation. All they have to do in this system is avoid doing conscious damage, and avoid distorting the company accounts too blatantly to make shareholders pay covertly for top corporate benefits.
But admitting that the pay structure is a kind of danegeld paid out to prevent other forms of legalised looting by corporate insiders would be highly embarrassing. So the term ‘bonuses’ has been conscripted to make the general public believe that some kind of payment by results is in place.
Trouble is that when huge losses are the financial order of the day, payment by results suggest no ‘bonus payments’, in the popular sense, should be made. But if you accept that the system is a tournament, it becomes unworkable without some element of obscene overpayments.
The RBS board (and others) are trying to maintain the ‘tournament system’ without actually admitting that is what they are doing. As I understand Harford, he also believes that an element of Tournament Economics’ is inevitable, so he does not suggest a solution.
Is Harford right? If so should we be bringing in the implications of ‘tournament economics’ into our political discourse?
The ‘Financial Sector’ likes to claim that their ‘bonuses’ are just like this, a kind of posh term for ‘payment by results’ or ‘piecework rates’. This may be the kind of hot air that suggests the collective noun ‘a Wunch of Bankers’.
The reality may be the ‘Tournament System’ so ably described for lay readers in Tim Harfords book ‘ The logic of Life’. Specifically the chapter on ‘why your boss is overpaid’.
This is how I understand Harford’s argument.
Basically most jobs cannot easily be assessed by performance by results. And jobs that involve handling big flows of money are difficult to constrain in the public interest. So what happens is a pay system analogous to a top tennis tournament. The winner, the champion, the chair of the Board, is guaranteed a huge wad of cash. Second place wins much less but still a worthwhile consolation. The aim though is to inspire the twenty or so people in the immediate lower tiers to work their socks off in order to make the organisation work. They need to be guaranteed enough money not to be seduced into rival tournaments. In turn this premier league gives incentives for a strata of much less well paid potential contenders, the people who may actually create the wealth for the organisation if wealth creation is part of the deal.
It is actually irrelevant whether the people getting the top prizes are competent or even active in the organisation. All they have to do in this system is avoid doing conscious damage, and avoid distorting the company accounts too blatantly to make shareholders pay covertly for top corporate benefits.
But admitting that the pay structure is a kind of danegeld paid out to prevent other forms of legalised looting by corporate insiders would be highly embarrassing. So the term ‘bonuses’ has been conscripted to make the general public believe that some kind of payment by results is in place.
Trouble is that when huge losses are the financial order of the day, payment by results suggest no ‘bonus payments’, in the popular sense, should be made. But if you accept that the system is a tournament, it becomes unworkable without some element of obscene overpayments.
The RBS board (and others) are trying to maintain the ‘tournament system’ without actually admitting that is what they are doing. As I understand Harford, he also believes that an element of Tournament Economics’ is inevitable, so he does not suggest a solution.
Is Harford right? If so should we be bringing in the implications of ‘tournament economics’ into our political discourse?
Labels: banks, bonuses, economic crash, economics, Financial markets, financial services, recession, tournements
Comments:
My father and mother are both bank employees, this is useful information for us about bonus and pay scales, i am here to find out some information about bank jobs, but this type of information we will get it very rare. Keep posting the new updates thank you.
Reshma M,
Online Bus Ticket Booking booking online is just a click Away!
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Reshma M,
Online Bus Ticket Booking booking online is just a click Away!
Friday, February 01, 2008
The Whiner of First Resort?
According to the Financial Times (30 Jan 2008) in the face of the current financial uproar the USA is carrying out rather different policies than those the ‘Washington Consensus’ economics insist on for every other country caught is a similar trap.
A side question not in the FT: does this actually put US interest rates below US inflation and is this therefore the equivalent to a Mediaeval monarch debasing his currency?
The FT concludes that The USA should follow its own rules (where have we heard that idea before?) :
Does that also apply to us in this sceptered Isle? If so what should we be doing different?
The same voices that supported tough macroeconomic policies to deal with the excesses of spending and borrowing in east Asia, Russia and Latin America are today pushing for a significant relaxation in the US to deal with the so-called subprime crisis. Interest rates should be slashed quickly and $150bn put into taxpayers’ pockets by April at the latest, they say. The Fed cut by another half-point on Wednesday.
A side question not in the FT: does this actually put US interest rates below US inflation and is this therefore the equivalent to a Mediaeval monarch debasing his currency?
The FT concludes that The USA should follow its own rules (where have we heard that idea before?) :
The US should face its need for adjustment with courage and reason, not fear. It should stop behaving as the whiner of first resort, ready to waste all its dry powder on a short-sighted attempt to prevent a 2008 recession. Many poorer countries with weaker markets and institutions have survived and benefited from an adjustment that involves a year of negative growth. Faster bank recapitalisation, fiscal investment stimulus and international co-ordination should be first on the policy agenda.
Does that also apply to us in this sceptered Isle? If so what should we be doing different?
Labels: fiscal, recession, USA
Comments:
I've seen some suggest interest rates are now below inflation. Of course, it probably depends on how inflation is being measured...
As for the double standards - its obvious why - its politics. The politicians want results now, the economists they pay for give them something which may create temporary relief.
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As for the double standards - its obvious why - its politics. The politicians want results now, the economists they pay for give them something which may create temporary relief.
