Dysfunctional Bonuses - It’s Not Just The Bankers

There’s something about bonus that becomes a fetish, frequently invested with more significance than its actual financial value - more, say, than a pay-rise of equivalent value.

This runs deep in human psychology: I’ve elaborated it a little here. The thought of being awarded that discretionary something extra really grabs the attention of mortal beings, who will do almost anything to be acknowledged and treated thus.

We hear a lot about how this has led bankers to misbehave: but through the era of NuLab the cult of bonus has spread far and wide, including to the public sector. Now public sector occupations typically lack the objective financial metrics against which profit-seeking organisation can (at least in theory) construct rational bonus schemes. So they invent metrics, generally based on ill-judged targets and poorly-quantified assessments of ‘output’ or, even worse, of input.

Result: the beneficiaries of the bonus scheme are incentivised to fiddle the less-than-objective figures which, such is the fixation on bonus, becomes a pre-occuptation. Every Police commander, every PCT boss, has a vested interest in massaging the data. With the grotesque consequence that, as Andrew Neil skewered a gibbering Jackie Smith with yesterday, none of the 33 desperate ‘phonecalls made by Fiona Pilkington were logged as a crime: so no-one believes NuLab’s rosy crime figures.

When the best brains in the Treasury are being bent to curb dysfunctional incentives for bankers, could they therefore broaden their scope ? We do indeed want to incentivise purposeful behaviours. There is a real conundrum here and it badly needs sorting.

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