Magazine article Management Today

Big Bonuses Improve Performance

Magazine article Management Today

Big Bonuses Improve Performance

Article excerpt

Whatever the rights and wrongs of it, when RBS boss Stephen Hester decided to turn down his pounds 1m bonus, he certainly helped the Government out of an embarrassing state of confusion. He spared it from having to come out and say whether, in fact, a bonus is necessary in order to get Hester to do as good a job as he is capable of on behalf of the taxpayer.

Simply asking that question reveals its absurdity. If Hester wants to stay in the pounds 1m-plus club in his next job, he is hardly going to say in a year's time: 'This is what I have achieved, but if I'd been paid that extra million I would have tried much harder.'

The debate over whether bonuses are necessary to persuade senior executives to give of their best will never be resolved until we recognise that we are asking the wrong question. It's not about rewards for performance, but how those rewards are shared out.

In the case of RBS, the Government sank pounds 45bn into rescuing a broken bank and would very much like to get that money back through a successful reprivatisation.

If Hester thinks, as he must, that his efforts significantly raise the chances of that happening, he would like (and it's reasonable for him to expect) a fair share of the wealth he creates in return. …

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