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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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As bad as stealing bacon – why did the Victorians treat acid attacks so leniently?

In an era of executions and transportation, 19th century courts were surprisingly laissez-faire about acid attacks. 

"We are rather anxious to see the punishment of death rescinded in all cases except that of Murder," stated the Glasgow publication, The Loyal Reformers’ Gazette, in 1831. But it did not share this opinion when it came to Hugh Kennedy.

Previously of “irreproachable character", Kennedy fell out with a fellow servant and decided to take his revenge by pouring acid on the man while he was asleep. “He awoke in agony, one of his eyes being literally burned out,” The Gazette reported.

Lamenting the rise in acid attacks, the otherwise progressive journal recommended “the severest punishment” for Kennedy:

“We would have their arms cut off by the shoulders, and, in that state, send them to roam as outcasts from society without the power of throwing vitriol again."

More than 180 years later, there are echoes of this sentiment in the home secretary’s response to a spate of acid attacks in London. “I quite understand when victims say they feel the perpetrators themselves should have a life sentence,” Amber Rudd told Sky News. She warned attackers would feel “the full force of the law”.

Acid attacks leave the victims permanently disfigured, and often blinded. Surprisingly, though, the kind of hardline punishment advocated by The Gazette was actually highly unusual, according to Dr Katherine Watson, a lecturer in the history of medicine at Oxford Brookes University. Hugh Kennedy was in fact the only person hung for an acid attack.

“If you look at the cases that made it to court, you see there is a huge amount of sympathy for the perpetrators,” she says.

"You want your victim to suffer but you don’t want them to die”

Acid attacks emerged with the industrial revolution in Britain. From the late 1700s, acid was needed to bleach cotton and prevent metals from rusting, and as a result became widely available.

At first, acid was a weapon of insurrection. “Vitriol throwing (that is, the throwing of corrosive substances like sulphuric acid) was a big problem in 1820s Glasgow trade disputes,” says Shane Ewen, an urban historian at Leeds Beckett University. Other cases involved revenge attacks on landlords and employers.

Faced with this anarchic threat, the authorities struck back. Scotland introduced a strict law against acid attacks in the 1820s, while the 1861 Offences Against the Person Act s.29 placed provided for a maximum sentence of life in England and Wales.

In reality, though, acid attackers could expect to receive far more lenient sentences. Why?

“They had sad stories,” says Watson, a leading historian of acid attacks. “Although they had done something terrible, the journalists and juries could empathise with them.”

Acid attacks were seen as expressions of revenge, even glorified as crimes of passion. As Watson puts it: “The point is you want your victim to suffer but you don’t want them to die.”

Although today, around the world, acid attacks are associated with violence against women, both genders used acid as a weapon in 19th century and early 20th century Britain. Acid crept into popular culture. Arthur Conan Doyle’s 1924 Sherlock Holmes story, The Adventure of the Illustrious Client, featured a mistress throwing vitriol in her former lover’s face. In Brighton Rock, Graham Greene’s 1938 novel, the gangster Pinkie attacks his female nemesis Ida Arnold with his vial of acid, before falling to his death.

Lucy Williams, the author of Wayward Women: Female Offending in Victorian England, agrees that Victorians took a lenient attitude to acid attacks. “Historically speaking sentences for acid attacks were quite low,” she says. “Serious terms of imprisonment would only usually be given if the injury caused permanent blindness, death, or was life-threatening.

“If this was not the case, a defendant might spend just a few months in prison - sometimes even less.”

Courts would weigh up factors including the gender of the attacker and victim, and the strength of the substance.

But there was another factor, far removed from compassion “Many of the sentences that we would now consider extremely lenient were a product of a judicial system that valued property over people,” says Williams. It was quite common for violent offences to receive just a few weeks or months in prison.

One case Williams has researched is that of the 28 year old Sarah Newman, who threw sulphuric acid at Cornelius Mahoney, and was tried for the “intent to burn and disfigure him” at the Old Bailey in 1883. The attacker and victim had been living together, and had three children together, but Mahoney had abandoned Newman to marry another woman.

Although Mahoney lost the sight in his right eye, his attacker received just 12 months imprisonment with hard labour.

Two other cases, uncovered by Ancestry.co.uk, illustrate the Victorian attitude to people and property. Mary Morrison, a servant in her 40s, threw acid in the face of her estranged husband after he didn’t give her a weekly allowance. The attack disfigured and blinded him.

In 1883, Morrison was jailed for five years, but released after two and a half. The same year, Dorcas Snell, also in her 40s, received a very similar sentence – for stealing a piece of bacon.

"People just had more options"

If Victorian attitudes become clearer with research, why acid attacks receded in the 20th century remains something of a mystery.

“My theory is people just had more options,” says Watson. With manufacturing on the wane, it became a little harder to get hold of corrosive fluid. But more importantly, the underlying motivation for acid attacks was disappearing. “Women can just walk away from relationships, they can get divorced, get a job. And maybe men don’t feel the same shame if women leave.”

Acid attacks did not disappear completely, though. Yardie gangs – mainly comprised of Jamaican immigrants – used acid as a weapon in the 1960s. Other gangs may have used it too, against victims who would rather suffer in silence than reveal themselves to the police.

Meanwhile, in 1967, the first acid attacks in Bangladesh and India were recorded. This would be the start of a disturbing, misogynistic trend of attacks across Asia. “Acid attacks, like other forms of violence against women, are not random or natural phenomena,” Professor Yakin Ertürk, the UN’s special rapporteur on violence against women, wrote in 2011. “Rather, they are social phenomena deeply embedded in a gender order that has historically privileged patriarchal control over women and justified the use of violence to ‘keep women in their places’.”

The re-emergence of acid attacks in Britain has been interpreted by some as another example of multiculturalism gone wrong. “The acid attacks of London’s Muslim no-go zones”, declared the right-wing, US-based Front Page magazine.

In fact, descriptions of the recent attackers include white men, and black and minority ethnic groups are disproportionately among the victims. A protest by delivery drivers against acid attacks was led by Asian men. 

Jaf Shah, from the Acid Survivors Trust International, suspects the current spate of attacks in fact originates from gang-related warfare that has in turn inspired copycat attacks. “In the UK because of the number of men attacked, it goes against the global pattern,” he says. “It’s complicated by multiple motivations behind these attacks.” Unlike other weapons in the UK, acid is easy to obtain and carry, while acid attacks are prosecuted under the non-specific category of grievous bodily harm. 

Among the recent victims is a British Muslim businessman from Luton, who says he was attacked by a bald white man, two teenage boys in east London, a delivery man, also in east London, who had his moped stolen at the same time, and a man in Leicester whose girlfriend – in a move Hugh Kennedy would recognise – poured acid on him while he slept.

Shah believes the current anxiety about acid attacks stems from the fact the general public is being attacked, rather than simply other members of gangs. Perhaps, also, it relates to the fact that, thanks to advances in our understanding of trauma since the Victorian period, 21st century lawmakers are less interested in the theft of a moped than the lifetime of scars left on the driver who was attacked.

With Rudd promising a crackdown, the penalties for acid throwing are only likely to get harsher. “Many survivors feel the sentencing is too lenient,” Shah says. Still, the rise and fall and rise again of acid throwing in the UK suggests the best way to eradicate the crime may lie outside the courts.

Julia Rampen is the digital news editor of the New Statesman (previously editor of The Staggers, The New Statesman's online rolling politics blog). She has also been deputy editor at Mirror Money Online and has worked as a financial journalist for several trade magazines.