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'Bankers deserve bonuses'

For the past decade John Roberts has worked within a bank in the City where the annual cash bonus is

Until recently the City has been an opaque place where a strange language is spoken, alien amounts of money earned, largely through unimaginably vast bonuses.

And, I concede, I've not done too badly out of it. But don't get me wrong – by banking standards I'm not one of those big earners.

Not by a longshot.

The securities firm where I work is part of an international banking group one, incidentally, which hasn't received state aid.

The firm comprises two divisions - securities and corporate finance.

The securities division generates commission from dealing in shares for large investors and generates profits from market making – that's a turn on the difference between the price at which the firm offers to buy and sell shares for clients. It also trades in shares with its own funds.

Its analysts publish research on quoted companies, the salesmen talk about this research, together with general news. This joint effort is intended to generate buy and sell orders from pension, investment and hedge fund clients. Market makers and traders buy and sell shares.

The corporate finance division works for companies to earn advisory fees. Fees mainly come from acquisitions and from equity (share) fundraisings (initial public offerings, rights issues and placings), where the corporate finance and securities divisions operate in tandem.

As such, the firm, and the 15-20 London firms like it, thrive in positive market conditions where investors are keen to invest in shares but suffer when negative sentiment prevails.

The business is operationally geared. The overhead – basic salaries, office space, systems and IT – is high but there is little variable cost. Once the overhead's been covered, the vast bulk of additional revenues go straight to operating profit. Revenues in the range of £50-60m represent a reasonable, if unexceptional, year.

More than 100 people work in the firm about a third of whom would see themselves as senior revenue generators or managers. Senior employees earn base salaries of £100-130K.

The bonus pot

Internally, the bonus pot is seen as the purpose of the firm. The potential to double, triple or even quadruple your base salary – not unrealistic for decent performers in benign conditions - is seen as the principal purpose for working. And it makes for a motivating and exciting environment. Few things galvanise effort more than money.

There is a sense that the basic salary is required to get you to turn up and that any reasonable level of performance justifies the payment of a bonus.

The workings of the overall bonus pot in our organisation are in part simple and clear and in part byzantine and opaque.

A simple and clear split is agreed between the owner and firm’s management as to the portion of pre-bonus operating profit which goes into the bonus pot. This generally ranges from a third to a half in this subsector. It is understood throughout the firm that it is in everyone’s interest to maximise the bonus pot. Little or no management is required.

With good momentum in the first half of the year, there is a huge collective effort to build up commissions and fees, particularly in the last quarter.

People understand that improving the overall quality of the business - by attracting good clients - should make maximising the pot easier in the medium term.

So why would businesses like this keep their system for rewarding their employees so opaque?

In theory, the guiding principle should be how much revenue you have brought in or assisted during the year combined with your contribution to the medium term health of the firm through client wins, analyst ranking by investors, deal quality and profile.

In practice, while management talks fluently about transparency, procedure and principles, such an approach would be unworkable.

A clear and transparent procedure would, at best, be used by employees to argue in detail their bonus level and, at worst, to litigate. It helps that no-one else knows what you are awarded.

But here's the downside. Your performance is only part of it. The rest is politics and if your currency is high in the company then you could, in extreme but not uncommon circumstances, get three times the bonus of a similarly performing, though less favoured colleague.

The half a dozen heads of each activity meet to decide what each person should get.

Some of these individuals will fight for their teams. Others may not because they need to think carefully about their own positions. They need to leave a fair chunk of the pot free for themselves.

Giving too much credit to team members could underplay the importance of outstanding management!

In practice, the key markers are the overall size of the pot and what each individual got last year.

The interpretation which most accurately seems to fit the facts is that the heads then seek to pay out as little as they can get away with so as not to unbalance the ship too much whilst leaving as much as possible for the favoured few and themselves.

There are probably three avenues to joining the very small group of super earners, who can pull in more than £400K in non-exceptional years - this is not a highly paid part of the City.

Being very good, means delivering large revenues by quietly getting on with the job, or joining the management group or becoming favoured by management either through politics or making a lot of noise.

Considering the firm, there may be three or four individuals at one time (out of more than 100) who are very good and whose departure would be felt across the company.

These people are usually unremarkable to meet but have the knack of developing strong relationships with big hitting clients. As the firm depends on their earning power, these people need to be well remunerated.

Of the half a dozen heads, no individual directly sets his own bonus but as a member of this group you can frame the discussion and make your case directly.

Becoming part of this group requires good performance early in your career followed by a lot of time and effort politicking – or simply being hired from another firm.

Climbing upwards necessitates stepping on people – and only a minority are willing to embark on this high risk strategy.

More time managing means less client contact and weaker client relationships – ultimately clients pay bills. Life expectancy for a head is not long – generally three to four years maximum. This makes it imperative to squeeze the most out during the years in the sun.

Members of the favoured group are usually very impressive to meet. It is only with a reasonable level of probing and watching their mediocrity becomes apparent.

Joining this group requires a mixture of charm, eloquence and shamelessness. Symptoms include the development of an external profile and regular threats to leave the firm citing attractive job offers.

This is a difficult game to play and, again, requires a certain type of character but has been done very effectively over the years leading to a substantial misallocation of the bonus pot, particularly in boom years.

To continue the criticism, it is possible to cite disasters for both employee and firm which inevitably accompany a secretive bonus procedure that can allow both management and employees to act without scruple.

It is not uncommon for strong performers to be awarded zero bonuses as a result of a mixture of personal animosity and political miscalculation.

Employment lawyers advise that unless some form of discrimination – sex or age - can be demonstrated, the courts are (sensibly) very reluctant to get involved. Bonuses are explicitly discretionary and the employee’s redress is to quit.

And, of course, the system can be worked. For example one of the activity heads secured very substantial bonuses for himself and two colleagues, no doubt citing their irreplaceability.

Inexplicably and against previous practice, the firm agreed not to retain any portion of these bonuses and the day the money hit their bank accounts, he and these colleagues walked and joined a rival firm. Such stories are not uncommon.

All that said, for the genuine stars and the bulk of the team – reasonably good if unexceptional performers – the best policy is to get on with the job of servicing clients and delivering revenue.

Annual cash bonuses work well for businesses which generate annual cash profits. While rewarding performance year by year clearly encourages short termism, most senior employees are in for the medium term and are therefore interested in promoting the ongoing health of the business.

And there's something else. It seems to this avowed capitalist at least that a bonus system where the business owner agrees to share a very material portion of the profits with the employees, who take no capital risks, has a strong socialist dimension.

The approach seems instinctively very fair. And I'd argue with my eyes open to its many imperfections that the bonus culture overall works well. I commend it to other industries making up UK plc.

Of course these waters are muddied just now by the intervention of the government in propping up some of the larger banks and this exposes a curious dilemma.

As part of a large effectively bankrupted institution, employees at RBS are lucky to have jobs at all and the reverse laundering of tax payers money into bankers’s bank accounts must be a non-starter.

On the other hand, it seems grossly inequitable that, where there are profitable and cash generative businesses within it, those people who sweated to create profits and cashflow without which the bank would be in even worse fettle are now left high and dry without the reward they have worked for.

Put it this way, without those efforts made on the promise that bonuses would be awarded the taxpayers’ investment would be in even more peril than it already is.

In addition, restricting bonuses is suicidal for the medium term value of those good businesses within the group.

The answer to that rather knotty dilemma? I don’t know. But perhaps reneging on a promise in order to shoot yourself in the foot is politically necessary sometimes.

John Roberts is not the author's real name

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When it comes to responding to Islamic State, there is no middle ground

If Britain has a declared interest in curtailing Islamic State and stabilising Syria, it is neither honourable nor viable to let others intervene on our behalf.

Even before the brutal terrorist attacks in Paris, British foreign policy was approaching a crossroads. Now it is time, in the words of Barack Obama, addressing his fellow leaders at the G20 Summit in Turkey on 16 November, “to step up with the resources that this fight demands”, or stand down.

The jihadist threat metastasises, and international order continues to unravel at an alarming rate. A Russian civilian charter plane is blown out of the sky over the Sinai Peninsula in Egypt, killing 224 people, most of them returning from holiday, and the various offshoots of Islamic State bare their teeth in a succession of brutal attacks in France, Lebanon, Tunisia, Turkey and further afield. Our enemies are emboldened and our friends want to know to what extent we stand with them. The UK can no longer afford to postpone decisions that it has evaded since the Commons vote of August 2013, in which the government was defeated over the question of joining US-led air strikes against President Bashar al-Assad’s regime following a chemical weapons attack on Syrian civilians. MPs’ continued introspection is on the verge of becoming both irresponsible and morally questionable. There is no fence left to sit on.

On Sunday night, two days after the Paris attacks, the French – with US support – launched a series of bombing raids against Islamic State targets in Raqqa. With much more to come, the choice facing this country may not be easier but it is certainly clearer. Britain must determine whether it wants to be a viable and genuine partner in the fight against Islamic State, and in the long-term efforts to bring an end to the assorted evils of the Syrian civil war; or whether we are content to sit on the sidelines and cheer on former team-mates without getting our knees dirty. We can join our two most important allies – France and the United States, at the head of a coalition involving a number of Arab and other European states – in confronting a threat that potentially is as grave to us as it is to France, and certainly more dangerous than it is to the US. Alternatively, we can gamble that others will do the work for us, keep our borders tighter than ever, double down on surveillance (because that will certainly be one of the prices to pay) and hope that the Channel and the security services keep us comparatively safe. There is no fantasy middle ground, where we can shirk our share of the burden on the security front while leading the rest of the world in some sort of diplomatic breakthrough in Syria; or win a reprieve from the jihadists for staying out of Syria (yet hit them in Iraq), through our benevolence in opening the door to tens of thousands of refugees, or by distancing ourselves from the ills of Western foreign policy.

That the international community – or what is left of it – has not got its act together on Syria over the past three years has afforded Britain some space to indulge its scruples. Nonetheless, even before the Paris attacks, the matter was coming to the boil again. A vote on the expansion of air operations against Islamic State has been mooted since the start of this year, but was put on the back burner because of the May general election. The government has treated parliament with caution since its much-discussed defeat in the House in summer 2013. The existing policy – of supporting coalition air strikes against Islamic State in Iraq but not Syria – is itself an outgrowth of an awkward compromise between David Cameron and Ed Miliband, an attempt to reverse some of the damage done by the 2013 vote in parliament.

The Conservatives have waited to see where the ground lies in a Jeremy Corbyn-led Labour Party before attempting to take the issue back before the Commons. Labour pleaded for more time when Corbyn was elected, but there is no sign that the Labour leader is willing to shift in his hostility to any form of intervention. More significantly, he has now ruled out Labour holding a free vote on the matter.

If anything, the coalition of Little Englanders, anti-interventionists and anti-Americans in the House of Commons seems to have dug its trenches deeper. This leaves the Prime Minister with few options. One is to use the Royal Prerogative to announce that an ally has been attacked, and that we will stand with her in joining attacks against Islamic State in Syria. The moment for this has probably already passed, though the prerogative might still be invoked if Isis scores a direct hit against the UK. Yet even then, there would be problems with this line. A striking aspect of the killing of 30 Britons in the June attacks in Sousse, Tunisia, is just how little domestic political impact it seems to have made.

Another option for Cameron is to try to make one final effort to win a parliamentary majority, but this is something that Tory whips are not confident of achieving. The most likely scenario is that he will be forced to accept a further loss of the UK’s leverage and its standing among allies. Co-operation will certainly come on the intelligence front but this is nothing new. Meanwhile, the government will be forced to dress up its position in as much grand diplomatic verbiage as possible, to obfuscate the reality of the UK’s diminishing influence.

Already, speaking at the G20 Summit, the Prime Minister emphasised the need to show MPs a “whole plan for the future of Syria, the future of the region, because it is perfectly right to say that a few extra bombs and missiles won’t transform the situation”. In principle, it is hard to argue with this. But no such plan will emerge in the short term. The insistence that Assad must go may be right but it is the equivalent of ordering the bill at a restaurant before you have taken your seat. In practice, it means subcontracting out British national security to allies (such as the US, France and Australia) who are growing tired of our inability to pull our weight, and false friends or enemies (such as Russia and Iran), who have their own interests in Syria which do not necessarily converge with our own.

One feature of the 2013 Syria vote was the government’s failure to do the required groundwork in building a parliamentary consensus. Whips have spent the summer scouting the ground but to no avail. “The Labour Party is a different organisation to that which we faced before the summer,” Philip Hammond, the Foreign Secretary, has said. It is ironic, then, that the Prime Minister has faced strongest criticism from the Labour benches. “Everyone wants to see nations planning for increased stability in the region beyond the military defeat of the extremists,” says John Woodcock, the chairman of the Parliamentary Labour Party defence committee, “but after two years of pussy-footing around, this just smacks of David Cameron playing for time when he should be showing leadership.”

The real story is not the distance between the two front benches but the divisions within both parties. There are as many as 30 Conservative MPs said to be willing to rebel if parliament is asked to vote for joining the coalition against Islamic State in Syria. It seems that the scale of the Paris attacks has not changed their position. A larger split in the Labour ranks also seems likely. Even before Paris, there were rumoured to be roughly 50 MPs ready to defy their leader on this question.


At first, in the wake of last week’s attacks, it seemed as if the Prime Minister might force the issue. To this end, he began the G20 in Turkey with a bilateral meeting with President Putin. His carefully chosen words before and after that discussion, in which he was much more emollient about Moscow’s role, showed the extent to which he was prepared to adapt to the changing situation. Cameron hoped that if he could show progress in building an international coalition on the diplomatic front, that might just give him enough to get over the line in a parliamentary vote.

This new approach has not had the desired effect. At the time of writing, the government believes it is too risky to call another vote in the short term. It calculates another defeat would hugely diminish Britain’s standing in the world. In truth, the government was already swimming upstream. On 29 October, the Conservative-
dominated Commons foreign affairs select committee, chaired by Crispin Blunt, released a report on the extension of British military operations into Syria, in anticipation of government bringing forward a parliamentary vote on the question. The report recommended that Britain should avoid further involvement unless a series of questions could be answered about exit strategy and long-term goals. The bar was set deliberately high, to guard against any further involvement (even the limited option of joining the existing coalition undertaking air strikes against IS in Syria).

The most flimsy of the five objections to further intervention in the report was that it will somehow diminish the UK’s leverage as an impartial arbiter and potential peacemaker. This is based on an absurd overestimation of the UK as some sort of soft-power saviour, valued by all parties for its impartiality in Middle Eastern affairs. Britain cannot hope to have any influence on policy if it is always last to sign up while others put their lives on the line. As so often in the past, what masquerades as tough-minded “realpolitik” is nothing of the sort. It is just another post-facto rationale for inaction.

Although it is sometimes said that Britain has yet to recover from the consequences of the invasion of Iraq, the committee report had a retro, 1990s feel. Many of the objections raised to burden-sharing in Syria were the same as those raised against humanitarian intervention in the Balkans two decades ago, when Blunt was working as special adviser to Michael Rifkind as defence and foreign secretary, and the UK was at the forefront of non-intervention. Likewise, two of the committee’s Labour members, Ann Clwyd and Mike Gapes, were veterans of the other side of that debate, and strong supporters of the Nato intervention in Kosovo in 1999. They expressed their dissent from the report’s conclusions but were voted down by their Conservative and SNP fellow committee members. “Non-intervention also has consequences,” said Gapes when he broke rank. “We should not be washing our hands and saying, ‘It’s too difficult.’”

Polling figures have shown majority public support for air strikes against IS since the spate of gruesome public executions that began last year, but nothing seems to change the calculus of the rump of anti-interventionist MPs.

All this promises an uncertain future for British foreign policy. On 6 November, the Defence Secretary, Michael Fallon, suggested that the UK’s existing position, of joining the coalition in Iraq but stopping at the borders of Syria, is “morally indefensible”. The killing of Mohammed Emwazi, aka “Jihadi John”, by a US predator drone on 12 November demonstrates what he meant. Emwazi was a Briton who was responsible for the beheading of British and American citizens, as well as countless Syrians. While the UK government was closely involved in that operation – and has previously used the justification of “self-defence” to “take out” targets in Syria – such are the restrictions placed upon it that we are forced to ask our allies to conduct potentially lethal operations (which are in our core national interests) on our behalf. The very act of “self-defence” is subcontracted out once again.

How long can this last when Islamic State poses a much greater threat to the UK than it does to the US? There is an issue of responsibility, too, with hundreds of British citizens fighting for and with Islamic State who clearly pose a grave danger to other states.


The very notion that Britain should play an expansive international role is under attack from a pincer movement from both the left and the right. There are two forms of “Little Englanderism” that have made a resurgence in recent years. On the left, this is apparent in the outgrowth of a world-view that sees no role for the military, and holds that the UK is more often than not on the wrong side in matters of international security, whether its opponent is Russia, Iran, the IRA or Islamic State. The second, and arguably just as influential, is the Little Englanderism of the right, which encompasses a rump of Tory backbenchers and Ukip. This is a form of neo-mercantilism, a foreign policy based on trade deals and the free movement of goods that regards multilateralism, international institutions and any foreign military intervention with great suspicion, as a costly distraction from the business of filling our pockets.

The time is ripe for long-term, hard-headed and unsentimental thinking about Britain’s global role. The country is not served well by the impression of British “decline” and “retreat” that has gained ground in recent times; and it is no safer for it, either. Given how quickly the security and foreign policy environment is changing, the publication of the Strategic Defence and Security Review in the coming week, alongside an update of the National Security Strategy, is likely to raise more questions than it answers. The officials responsible for its drafting do not have an easy brief, and news forecasting is a thankless task. Strategic vision and leadership must come from our elected politicians.

For all the talk of British decline, we are still one of the five wealthiest nations in the world. What we do matters, particularly at moments when our friends are under attack. However, until a new broad consensus emerges between the mainstream Labour and Conservative positions on foreign policy, the Little England coalition will continue to have the casting vote.

Syria continues to bleed profusely and the blood seeps deeper into different countries. There will be no political solution to the civil war there for the foreseeable future; to pretend that there is a hidden diplomatic solution is to wish to turn the clock back to 2011, when that might have been possible. Nor is the security situation any easier to deal with. A few hours before the attacks in Paris began, President Obama gave an interview in which he argued that he had successfully “contained” Islamic State. For the wider Middle East and Europe, that is simply not the case. Now, France will escalate its campaign, and the US will do more. Russia already has troops on the ground and will most likely send reinforcements.

The war in Syria is becoming more complicated and even more dangerous. The best that can be hoped for is that the Syrian ulcer can be cauterised. This will be achieved through the blunting of Islamic State, simultaneous pressure on Assad, and the creation of more safe places for Syrians. All roads are littered with difficulties and dangers. Yet, in the face of this ugly reality, is Britain to signal its intention to do less as every other major actor – friend and foe alike – does more? If we have a declared national interest in curtailing Islamic State and stabilising Syria – both because of the growing terrorist threat and because of the huge flow of refugees – then it is neither honourable nor viable to let others take care of it on our behalf.

John Bew is an NS contributing writer. His new book, “Realpolitik: a History”, is newly published by Oxford University Press

This article first appeared in the 19 November 2015 issue of the New Statesman, The age of terror