A test for motives in banking: ending bonuses

The new head of Germany’s largest bank challenges the financial industry by questioning the use of bonuses as a worthy incentive for providing service to customers. High finance needs more such ethical reflection.

Reuters
Deutsche Bank's chief executive John Cryan

To many in banking, John Cryan has become the Grinch who might steal Christmas, or rather the Christmas-like gift of a yearly bonus. The new co-chief executive of Deutsche Bank, one of Europe’s flagship financial institutions, has broken ranks with the industry by saying that bonuses are not a great motivator for those in banking to do good work.

“I’ve never been able to understand the way additional excess riches drive people to behave differently,” said the British-born executive in a Nov. 24 speech at Frankfurt’s Goethe University. He says he does not empathize with those who work harder simply “because they can be paid a little bit more.”

His view is the latest challenge for an industry still being criticized after the 2008-09 financial crisis for giving pay incentives to push mortgage lenders and other workers to take excessive risks, or even to assist in fraud. Mr. Cryan’s views were echoed by the recent chief executive of Barclays bank, Antony Jenkins. In a speech, he proposed an end to “geared incentives in retail or investment banking” in order to “remove the temptation to cut corners.”

Perhaps no other industry has undergone so much public criticism, new regulation, and self-reflection as banking. Deutsche Bank was one of those worst hit by scandals, forcing Germany’s largest bank to bring in a Briton to clean it up. To now hear at least two top banking professionals suggest that the annual bonus pots do not sweeten a banker’s core motives reveals a renewal of ethical thinking.

Performance pay can still be effective in many industries where individual results can be measured over long periods of time. In banking, however, the bonus culture had become too short-sighted and corrupting, leading to a financial bubble a decade ago. Even managers who oversaw failure were rewarded. The purpose of high finance as a lubricant for wise investment and savings had become out of whack with executive compensation.

“Many people in the sector still believe they should be paid entrepreneurial wages for turning up to work with a regular salary, a pension and probably a healthcare scheme and playing with other people’s money,” said Cryan.

New banking regulations on executive pay in the United States and Europe are designed to encourage less reckless risk-taking and more of a long-term perspective. Banking needs to return to an ethic of service and away from the mercenary aspects driven by the yearly bonus.

Mr. Jenkins even suggests banks should not use bonuses or other short-term incentives to attract good workers. “If banks want to really compete for talent successfully, they are going to have to make themselves interesting places to work. It can’t just be about the money, because frankly the money isn’t going to be there the way it was before 2008.”

Capitals of high finance like New York, London, and Frankfurt need reformers like Cryan. And those reforms should include a hard look at bonuses which, if they exist at all, should be only the icing on the cake and not the cake itself.

(Editor's note: An earlier version of this editorial gave an incorrect name of the former Barclays chief executive.)

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