We already knew that nothing matters to investment bankers more than their bonus. Now they are fighting for their year-end payments through the legal system.
In recent years, London has had a rising tide of bankers who are so embittered by the size of their annual rewards that they are suing their employers for more money.
It is the latest example of a bonus culture that has gone mad within investment banks.
Bonuses aren’t a right, and they shouldn’t be recognized as such by the courts. They are a reward that might come your way, or might not. The only people who have a claim to share the profits of an investment bank are the shareholders. The managers need to make sure their employees remember that.
UK courts are increasingly ruling on disputes that would be better handled in the office. Two former Deutsche Bank AG executives are suing over what they see as their rightful share of the proceeds from a 500 million-euro (Rs2,900 crore) property transaction. Deutsche Bank is fighting the claims.
Last month, trader Daniel Ridgway sued JPMorgan Chase & Co. for allegedly depriving him of more than 1 million pounds (Rs8.5 crore) in stock options and other deferred compensation. JPMorgan contested the claim. At least seven similar cases involving various banks are now being fought through the legal system.
Those are just this year’s examples. As far back as 2003, Lehman Brothers Holdings Inc. settled out of court with one of its former employees, Kerim Derhalli, after he claimed he was owed $16.5 million in unpaid bonuses from 1998 to 2000.
The real issue is what these actions tell us about the expectations of investment bankers, and the way the bonus culture has spun out of control.
In fairness, the banks are themselves partly to blame. They have come to rely heavily on incentive payments to motivate workers, so they can hardly complain when bigger and bigger sums are expected as an automatic reward.
Yet, it is hard to escape the conclusion that investment bankers have lost all sense of perspective. They have formed an opinion of their own worth that is so exaggerated that they have little understanding of what a bonus actually is.
The sums of money are eye-watering. It isn’t as if the people involved were underpaid. For example, the former employees suing Deutsche Bank received more than 1 million pounds in the year in question, according to the bank. Derhalli received $6 million over three-and-a-half years, according to Lehman at the time of the dispute.
A bonus isn’t a salary. Nor is it a dividend. It is a reward on top of your usual remuneration for exceptional effort or outstanding performance. It should probably be unexpected.
Bankers may claim they have made a lot of money for their employers. So what? That’s what they were paid for. The people serving the burgers and fries at McDonald’s Corp. restaurants aren’t entitled to a bonus just because the business happened to do well one year. They already got paid for doing their jobs. The same principle should apply at a bank.
The only people who have a right to share bank profits are the people who put money at risk: the shareholders. The employees don’t usually put their money on the line, so they can’t expect to receive some of the profits.
If they aren’t happy with the amount they are paid, there is a simple remedy: find another job. If you are as good at making money as you claim, it won’t be hard. Competitors will be lining up to hire you, probably at a higher salary.
Alternatively, persuade some investors to back you in your own business. In cases where an employee is making a lot of money for the firm, the bank will be happy to pay a lavish bonus — nobody wants to see a money-making asset walk out the door.
At Deutsche Bank, and the other lenders under attack from former staff, the managers need to remember that it is the shareholders for whom they ultimately work.
Maybe the banks should beef up their training programmes as well. If they churned out more young bankers, there would be a greater supply of qualified people all the way up the career ladder, and it would be harder for their staff to hold them to ransom. More supply—as their economics team could tell them—would eventually bring salaries and bonuses under control.
They should fight the actions, no matter how expensive it gets. And they should remind their existing employees that bonuses are paid at the discretion of the firm, not because the banker demands it.
Otherwise, they risk contributing to a culture in the financial markets where people feel they are entitled to extravagant rewards even when they haven’t taken on any of the risks necessary to earn them. In the long run, that can hardly be healthy — probably not for the bankers themselves, and certainly not for the industry they work in.
Matthew Lynn is a Bloomberg News columnist. The opinions expressed are his own.