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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

NEAL FOX FOR NEW STATESMAN
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They know where you live

Imagine your house being raided by armed police. That’s what happened to Mumsnet’s Justine Roberts after she fell victim to an internet hoaxer.

At around midnight on Tuesday 11 August 2015, a man dialled 999 to report a murder. A woman had been killed in her London home, he said, before hanging up without offering his name. A second call followed. This time, the man claimed to be the killer. He told the operator that he had now taken the woman’s children hostage at the Islington address. They were locked with him inside a room in the house, he said. The police responded with reassuring speed. Fifteen minutes later, eight officers, five of them armed with automatic weapons, accompanied by saliva-flecked dogs, arrived at the scene and took up position in neighbouring front gardens. When one officer banged on the front door of the house, the team was greeted, moments later, not by a masked murderer but by a blinking and bewildered au pair.

Justine Roberts, the woman whom the caller claimed to have killed, was in fact nearly 2,000 kilometres away – in Italy, holidaying with her husband and children. After explaining this to the police, the au pair called Roberts, who assumed that the incident was an unfortunate misunderstanding, one that could be unpicked after the vacation. It was no mistake. Roberts had been the victim of “swatting”, the term given to a false emergency call designed to bait an armed unit of police officers to storm someone’s home. It wasn’t until a few days later, as the family was preparing to return to London, that Roberts discovered that she had been the target of a planned and sustained attack, not only on her household, but also on her business.

Roberts is the founder of Mumsnet, the popular British internet discussion forum on which parents share advice and information. A few days before the swatting incident, members of 8chan, a chat room that prides itself on being an open, anonymous platform for free speech, no matter how distasteful, had registered accounts on Mums­net with the aim of trolling people there. When legitimate Mumsnet users identified and then ridiculed the trolls, some retreated to 8chan to plot more serious vengeance in a thread that the police later discovered. Roberts wasn’t involved in the online skirmish but, as the public face of the site, she was chosen as the first target.

After the initial armed response, Roberts’s perception was that the police were unconcerned about the swatting attack. “We were told that there was no victim, so there was not much that could be done,” she told me. The hoax caller, however, was not finished. In the days after the incident, there was chatter on Mumsnet and Twitter about what had happened. A Mumsnet user whom I will call Jo Scott – she requested anonymity for her own safety – exchanged heated messages with a hacker who claimed responsibility for the 999 call.

“It descended into jokes and silliness, like many things do,” Scott said. “I didn’t take it seriously when the hacker said he had big surprises in store.” She doesn’t believe that what happened next was personal. “I think I was just easy to find.”

A few days after police were called to Roberts’s home, Scott was in her bedroom while her husband was sitting downstairs playing video games. At 11pm, she heard a noise outside. “I looked out of the window and saw blue flashing lights in the street,” she recalled. “I could hear shouting but I didn’t pay it much notice.” Then she heard her husband open the front door. Police rushed into the house. An armed officer shouted upstairs, asking Scott if she was hurt. When she replied that she was fine, he told her to fetch her two young children: he needed to see them. Scott shook her sons awake, explaining, so as not to alarm them, that the police had come to show the boys their cars. As the three of them went downstairs, the officers swept up through the house, repeatedly asking if there were any weapons on the property.

“I was beyond confused by this point,” Scott said. “Everyone was carrying a gun. They had little cutaway bits so you could see the bullets. My eldest asked one of the officers if he could have a go on his gun and went to touch it.”

As Scott sat with an officer downstairs, she asked what had happened to her husband. “I later found out that the noises I’d heard were the police calling for him to come outside,” she said. “He dropped the PlayStation controller as he left the room. It was only later that we realised it’s a good job he did: in the dark, the controller might have looked like a weapon.”

Outside, Scott’s husband had been surrounded and arrested. Other police ­officers were on the lookout in the front gardens of nearby properties, having warned the couple’s neighbours to stay indoors, away from their windows. “One of the officers said it was beginning to look like a hoax,” Scott said. “Then he mentioned swatting. As soon as he said that word, I twigged that I’d seen the term that day on Twitter in relation to the Mumsnet hack.”

***

The term “swatting” has been used by the FBI since 2008. “Swat” is an acronym of “Special Weapons and Tactics”, the American police squads routinely called to intervene in hostage situations. It is, in a sense, a weaponised version of a phoney order of pizza, delivered as a prank to a friend’s home, albeit one that carries the possibility of grave injury at the hands of police. For perpetrators, the appeal is the ease with which the hoax can be set in motion and the severity of the results. With a single, possibly untraceable phone call, dialled from anywhere in the world, it is possible to send an armed unit to any address, be it the home of a high-profile actor whom you want to prank or that of someone you want to scare.

In America, where swatting originated, the practice has become so widespread – targets have included Tom Cruise, Taylor Swift, Clint Eastwood and the Californian congressman Ted Lieu – that it is now classed as an act of domestic terrorism. In the UK, where Justine Roberts’s was one of the first recorded cases, swatting is classed as harassment, though that may change if these and other forms of internet vigilante attacks, such as doxxing, become increasingly commonplace.

Doxxing involves the publication of someone’s personal details – usually their home address, phone numbers, bank details and, in some cases, email address – on the internet. It is often the prelude to swatting: after all, the perpetrator of a hoax cannot direct the police to the target’s home address until this is known. (During the week of the Mumsnet attacks, one of the perpetrators attempted to locate another target using their computer’s IP address, which can identify where a person is connected to the internet, often with alarming precision. Their calculation, however, was slightly out; police were called to a neighbour’s address.)

Though doxxing has a less dramatic outcome than swatting, the psychological effects can be just as severe. For victims – usually people who are active on the internet and who have outspoken opinions or who, in the eyes of an internet mob, have committed some kind of transgression – the mere threat of having their personal information made available on the web can cause lasting trauma. A Canadian software developer whose home address, bank details, social security number and email history were published online in 2014 told me that he now keeps an axe by his front door. “I still don’t feel safe here,” he said. “It’s terrifying.”

Christos Reid, a social media manager for a software company, was doxxed last year. Reid’s information came from a website he had registered seven years earlier. “I woke up one morning to find a tweet announcing my personal details,” he told me. When he asked the Twitter account holder to take down the address, he was told to commit suicide. Reid said he was “OK for about half an hour”; but then, after he went out, he broke down in the street. “I’ve become more paranoid,” he said. He no longer gives out business cards with personal information.

Reid lives in London, but at the time of the doxx he was attending an event in Nottingham, home to the British police’s largest cybercrime division. He was impressed with the police response, even though they told him that they had not heard of the term “doxxing” before. “I was interviewed by two separate people about my experiences who then compiled everything into a case file and transferred it to the Met. When I arrived home, an officer visited me to discuss what happened and my options.”

The policeman explained harassment law to Reid, and offered advice on how to improve security at his flat and what to do if someone hostile turned up at the address. Reid shouldered the repercussions of what had happened alone; no suspects were identified. A spokesperson for the Metropolitan Police similarly said that although detectives from Islington CID have investigated the swatting attacks made on Roberts and Scott, no suspects have been identified “at this time”, even as “inquiries continue”.

Doxxing may seem to be a mild form of harassment but it carries with it an implicit threat of impending violence; the worrying message is: “We know where you live.” Unlike swatting, which is always malicious, doxxing is sometimes viewed by its perpetrators as virtuous. In November 2014, hackers claiming to be aligned with the internet group Anonymous published personal information allegedly belonging to a Ku Klux Klan member from Missouri. The hackers said that their action was a response to the KKK’s threat to use lethal force against demonstrators in the city of Ferguson, Missouri, protesting against the killing of the unarmed black teenager Michael Brown by a white police officer. In January 2015 hackers claiming to be from Isis took over US Central Command’s Twitter account and posted information about senior military officers, including phone numbers and email addresses. In each case, those carrying out the doxxing believed, however mistakenly, in the virtue of their actions and hoped that the information could be used to bring punishment or ruin to the subject.

The term “doxxing” may be new but the practice is an old one. The Hollywood blacklist revealed the political beliefs and associations of actors and directors in the late 1940s as a way to invite shame, deny employment and dissuade others from following their example. “But it has become a lot easier to find people’s private details with the help of the internet,” Jeroen Vader told me. Vader owns Pastebin, a website that allows users to upload and distribute text documents, and where much of the personal data is anonymously uploaded and shared. “People post their private information on social networks,” he said. “A lot of people aren’t aware that their information is so easily available to others.”

In Justine Roberts’s case, the perpetrator may not even have needed to look at social networks to mine her personal information. “If you’re on the electoral roll, you’re easy to find,” she said. “There’s not much you can do to stop people getting hold of your data one way or another, whether it’s for nefarious reasons or simply to better advertise to you. We live in a world that is constantly trying to gather more information about us.”

Jeroen Vader said he has noticed an “upward trend” in the number of doxxing posts uploaded to Pastebin in recent months, but insisted that when someone uses the site’s abuse report system these offending posts are removed immediately.

Across social media companies, action is more often reactive than proactive. Victoria Taylor, a former director at Reddit, one of the largest community-driven websites in the world, said that the rule against publishing other users’ personal information has been “consistently one of the site’s most basic policies” and that “any violation of this rule is taken extremely seriously by the team and community”. Still, she was only able to recommend that victims of doxxing send a message to the site’s administrators. Similarly, when asked what a person can do to remove personal details that have been published without permission, a Twitter spokesperson said: “Use our help form.”

The spokesperson added: “There has def­initely been an overall increase in doxxing since 2006, both on Twitter and on the internet more generally.” She attributed this rise to the emergence of search engines such as Intelius and Spokeo, services designed to locate personal information.

***

The surge in the number of dox­xing and swatting attacks is in part a result of the current lack of legal protection for victims. Confusion regarding the law on doxxing is pervasive; the term is even not mentioned in either US or European law. In a tutorial posted on Facebook in 2013, the writer claims: “Doxxing isn’t illegal as all the information you have obtained is public,” and adds: “But posting of the doxx might get you in a little trouble.”

Phil Lee, a partner in the privacy, security and information department of Fieldfisher based at the law firm’s office in Silicon Valley, said that differing privacy laws around the world were part of the problem. “Various countries have laws that cover illegal or unauthorised obtaining of data. Likewise, some of the consequences of releasing that data, such as defamation or stalking, cover elements of what we now term doxxing. But there is no global law covering what is a global phenomenon.” Indeed, Roberts believes that her London address was targeted from America – the 999 call was routed through a US proxy number.

One challenge to creating a law on doxxing is that the sharing of personal information without permission has already become so widespread in the digital age. “If a law was to state something like, ‘You must not post personal information about another person online without their consent,’ it wouldn’t reflect how people use the internet,” Lee said. “People post information about what their friends and family members have been doing all the time without their consent.

“Such a law could have a potentially detrimental effect on freedom of speech.”

Lee believes that a specific law is unnecessary, because its potentially harmful effects are already covered by three discrete pieces of legislation dealing with instances where a person’s private information is obtained illegally, when that information is used to carry out illegal acts and when the publication of the information is accompanied by a threat to incite hatred. However, this does not adequately account for cases in which the information is obtained legally, and then used to harass the individual in a more legally ambiguous manner, either with prank phone calls or with uninvited orders of pizza.

Susan Basko, an independent lawyer who practises in California and who has been doxxed in the course of her frequent clashes with internet trolls, believes that the onus should be on the law, rather than the public. She points out that in the US it is a crime to publicise information about a government employee such as their home address, their home and cellphone numbers, or their social security number, even if the information is already online. “This law should apply to protect all people, not just federal employees,” she said. “And websites, website-hosting companies and other ISPs should be required to uphold this law.”

Basko said that doxxing will continue to increase while police have inadequate resources to follow up cases. For now, it is up to individuals to take preventative measures. Zoë Quinn, an American game designer and public speaker who was doxxed in 2014, has launched Crash Override, a support network and assistance group for targets of online harassment, “composed entirely of experienced survivors”.

Quinn, who spoke about the problem at a congressional hearing in Washington, DC in April last year, recently posted a guide on how to reduce the likelihood of being doxxed. “If you are worried you might some day be targeted,” she wrote, “consider taking an evening to stalk yourself online, deleting and opting out of anything you’re not comfortable with.”

Both Scott and Roberts have changed their privacy habits following the attacks. Scott is more careful about interacting with strangers online, while Roberts uses scrambler software, which ensures that she never uses the same password for more than one online site or service.

For both women’s families, the effects of their encounters with armed police have also lingered. When one day recently Roberts’s husband returned home early from work, the au pair called the police, believing it was an intruder. And Scott is haunted by what happened.

“What if my husband had made a sudden move or resisted in some way? What if my eldest had grabbed the gun instead of gently reaching for it? What if people locally believed that my husband did actually have guns in the house?” she asks. “I don’t think the people making these sorts of hoax calls realise the impact.” 

This article first appeared in the 28 April 2016 issue of the New Statesman, The new fascism