Failure to pay bonuses as a commercial risk?

Royal Bank of Scotland today have announced that they are going to cap their bonuses at 100% of salaries. They are doing this rather than attempting to apply for the 200% bonus after UK Financial Investments, the organisation that is administering the public ownership on behalf of the government, blocked the move.

The bank sees this as a commercial risk, presumably because they fear a loss of talent to their competitors.

But what are bonuses for? Are they to reward staff who have achieved high levels of performance? Are they to retain staff regardless of the level of performance achieved? Are they to motivate staff to achieve goals?

One of the issues I have is that many organisations don’t think through their reward strategy and in particular the consequences of that reward strategy. For example: –

• Are the rewards in the best interest of the individual or the organisation?
• Do the rewards encourage individuals to work as individuals or as part of a team in the delivery of performance?
• Do the rewards encourage staff to simply work harder in the pursuit of their goals, or do the rewards simply encourage them to take more risk with other people’s money?
• How do we structure the reward package to get both the behaviours and performance we need?

I understand that some banks are now paying more in bonuses than in dividends, so this topic is not going to go away in a hurry

Mike Bourne