“Banking is a game and bonuses are the prize, like medals for athletes. Bankers want to compete, and will continue to do so even after we alter the playing field, for instance by drastically cutting or even abolishing their bonuses. Why don’t managers focus more on this? Well, for one thing, management in banking is a disaster. Of course it is. What makes you effective as a trader, asset manager or dealmaker doesn’t automatically make you a good manager. And it is from those ranks that the top management is recruited.
“Retail banking has the best management. The reason is that most managers there have worked their way up while working with relatively transparent products. The simpler the product, the better the management. As operations becomes more complex and opaque and performance becomes harder to measure, the quality of management decreases. You see that in banks and you see it at universities, hospitals … And, as they say, a fish rots from the head.
“I have seen people change after a bonus, seen them become unhappy. Suddenly their benchmark changed, they began to compare themselves to a whole different set of people. Parents know how this works. Imagine I give only one of my children a chocolate. Of course the other will start crying … Now I don’t give any chocolates to anyone. Everyone is happy.”