The debate about earnings, bonuses and fairness rumbles on and isn’t going to end soon. With the financial squeeze most of us are feeling, it is inevitable we look at the City in particular and wonder why they are still paying themselves so much, after all we now know about their endemic failures. Yet there is a debate (on yesterday’s World At One for example), because people in the City are sticking to their guns over the needs for massive financial incentives to “motivate” their top performers. This RSA Animate talk by Dan Pink, from 2010, is especially interesting on this topic – worth a look (it’s 10 minutes or so):
So, larger rewards lead to poorer performance, says Pink, for anything other than purely mechanical tasks. This isn’t some isolated study in one place, the findings have been repeated over and over again around the world. Once you pay people “enough to take the issue of money off the table”, further financial reward does not improve performance. What actually influences performance are the extent to which our needs for the following are satisfied: (1) autonomy, (2) mastery (getting better at stuff) and (3) purpose.
So where does that leave the City’s arguments that its high pay and bonus culture is essential to its future health?
The City’s best argument as to why they should award their employees massive financial incentives is perhaps then the very charge that is laid at their door: that they are uniquely motivated by money. For them, the issue of money is not “off the table”, because of their unusual obsession with financial reward as the measure of their status.
So the question becomes how to get them out of this mindset, which is unnecessarily damaging the investors they work for (including indirectly most of us as pension investors), not to mention the wider public concerns over fairness now voiced by the leaders of all the main political parties. Logically, we should be trying to get them to the lowest level of incentivisation at which money is “off the table” from a motivational point of view, without damaging overall performance. If they pay above that, employers in the City are simply wasting their investors’ money.
Easier said than done. And of course, those running the City institutions, the ones in control of this, have a personal vested interest in keeping pay high – because it’s their pay too. It may be that there is no way to make it happen without the government forcing action, for example through punitive taxation of bonuses. But if Dan Pink is right, a bit of cognitive therapy is what they need. The people in this overpaid bubble need training on the value of money – that is, the actual human value of it. It’s as if, like porn addicts, they see so much of it on their screens they become desensitised to the real thing.
We could all be better off if they understood two things better: (1) that they already probably have enough; and (2) that getting more for themselves should not be the measure of how successful they are as people. Perhaps twice weekly sessions at the shrink for people in City remuneration committees could be a good use of taxpayers’ money.
High earners generally understimate, sometimes quite dramatically, how high up the income scale they are, as my old colleague Sarah Castell showed in 2008 and 2011 in Ipsos MORI‘s qual work among the top 1% of earners on atittudes to pay: Ipsos MORI study on high earners’ attitudes to pay. The top 1% by the way is people earning £100,000+ a year.
But perhaps the City bankers receiving big bonuses are a special case even within this top 1%. It’s not so much because many earn well in excess of £100,000, but because their success is (as they see it) literally measurable in financial terms. They feel uniquely able to point to finite sums they have “made” for their clients (including, ultimately, all of us who have pensions) to which they seek to link their rewards.
This logic is based on a set of fallacies of course: that this money they are managing has grown only through their efforts to the exclusion of other factors; and that it is for the financial services industry to take whatever cut it wants on the profits it oversees. But they literally feel entitled to it. They act like a miner who wants to keep what he finds. The mining company invest millions in geological surveys and digging a deep mine; the trucks go back and forward on public roads and the mining company’s staff use schools, hospitals, public sewerage systems and so on. But the miner who first gets to the seam of gold sees the gold and reckons he should have a big percentage share, since he found it.
Unlike real miners, highly paid workers in the City are in charge – so they get away with it. And the mining company – that’s investors and the rest of us generally – can do little but accept the rest of the gold left over after the miner has taken what he thinks he deserves.
These are clever people, so here’s an intellectual challenge for them: re-imagine your working life so that the next person getting £50k more than you does not even slightly bother you. You are still rich but you are now measuring your satisfaction by how much autonomy you have, your mastery of what you do and the sense of purpose behind it. And you can know you’re actually doing the right thing by your clients and shareholders. Who knows, people might just come to respect you again …