Bankers’ bonuses are in the news again. It is the obscene size of investment bankers’ bonuses that has caused so much outrage. This year the average bonus is expected to be a whopping 72% of their base salary. We are in danger of focusing on size when the real issue is the bonus culture. Why do they have bonuses in the private sector when we don’t have them in the public sector? The simple answer appears to be that senior managers in the private sector just won’t be motivated enough unless there is a financial incentive on top of their salary. So the opposite is presumably true in the public sector that managers are not motivated by money!
Of course the public sector has adopted the idea of annual appraisals and did flirt with the ideas of performance related pay but the latter proved to be a passing fashion. I would like to think this was due to the inherent unfairness of senior managers getting a bonus because their staff had hit or exceeded targets. I suspect however the real reason was because chief executives in local government realised there were too many external factors, too many variables and too little chance of ensuring a bonus. Instead they opted for higher base salaries.
Clearly senior managers in the public sector do expect to be paid well for the level of responsibility and the complexity of the job. But they don’t expect bonuses. Can the difference be explained by the fundamental difference between the public sector and the private sector that is that the private sector is about making money, the public sector is about making a difference? Success in the private sector is easy to measure, its profit. Success in the public sector is not easy to measure or easy to agree on, a positive inspection report, a good star rating, an increased majority for the controlling political party, a rise in employment, a fall in crime or people living longer and healthier.
The issue of bonuses is getting more complicated as the distinction between the private sector and public sector becomes less clear. We now have banks in public ownership and health and care service provided by the private sector but funded by the public sector. We have the Tory led government encouraging public sector employees to set up co operatives where annual profits are shared equally amongst staff. Is it any wonder people are confused about whether bonuses are fair and necessary?
Blair McPherson is author of Equipping Managers for an Uncertain Future published by www.russellhouse.co.uk