Banker bonus bollocks balls

It's banker bonus time again, which means there’s the usual political point scoring drivel. My personal favourite so far has been the BBC asking a recruitment consultant for an opinion*; as you’d expect, given his fees are a % of the wages of the people he introduces to new employers, the consultant argued against any pay restrictions. Go figure.

I’ve yet to see the point made about how the total sums due to get quoted include the bonuses paid to the 10s of thousands of relatively low paid bank staff (e.g. a bank cashier starts on 8-11 grand a year and might eventually reach the giddy heights of 24 grand p.a.), but am sure its coming soon. And there’s been no discussion - I’ve seen - as yet of the actual changes to how bonuses are paid and the various clawback terms and access restrictions that have been introduced.

Here though I reckon I’ll query the superstar argument getting made yet again  to justify the big, big, biggie bonuses. According to this bankers are like top footballers, game changing individuals whose world class acumen and expertise generate far more in taxes and profits than they ever get paid. Plus, if they don’t get what they want, they’ll emigrate to Singapore or New York and we’ll all lose out as a result.

Bollocks. Lets take the superstar analogy at face value then only in relation to baseball where the book, then film Moneyball set out how in baseball teams regularly overpaid for underperforming superstars, this being the natural result of whole squads of experts and insiders all buying into a common sense that happened to use the wrong metrics to assess player performance. Now a couple of things follow on from this:

• Don’t take what “experts” say at face value, especially if they’ve a vested interest in saving the value of their own faces (and bank balances, see recruitment consultant quoted above).
• Conventional wisdom about what superstar performance looks like or derives from can be wrong in systematic and sustained ways
• The “Sabremetrics” documented in Moneyball showed up – because it enabled teams to exploit - sustained and systematic market failures when it came to setting baseball salaries.
• The “Sabremetrics” methodology that eventually challenged conventional baseball wisdom used dozens of metrics to measure how individuals performed over their careers. 

By contrast "Superstar” bankers are never, ever subject to the same degree of scrutiny, not even close (because there simply aren’t the metrics available, plus there would be confidentiality and data protection issues etc.,). So potentially then arguments made in favour of paying superstar bonuses to bankers are largely, make that primarily grounded in prejudice and vested interests.

Except, there have been some studies only these don't make for especially superstar reading. These have looked at how “top” financiers perform over time and when they move between employers. In both cases it transpires many move randomly from having good years to bad years i.e. luck is a big factor (though some private equity firms are a notable exception here when it comes to the ability to outperform on a sustained basis). And that rather than individual star performers, you're actually looking at strong teams in a positive environment, neither of which being especially transferable across the road to a different bank's Canary Wharf office let alone over the sea to Singapore or New York

And then there's the wee cheeky bit of fiddling that appears to have gone on in recent years. Like if they’re all so good why do so many appear to have (allegedly) committed fraud to make money what with the growing number of enquiries into  foreign exchange trading, libor, euribor etc., i.e. whole swathes of bank trading activity appears to have been utterly bent. Thankfully, every cloud has a silver lining;  those banks that have sacked, resigned, put on leave etc., traders provide a lovely experimental opportunity to test to what extent (a) the irreplaceable staff who have been replaced are actually perfectly replaceable and (b) whether overall trading profits derive from gaming the various systems, luck or actual expertise (this, by the way, would not be hard to do, there are oodles of microeconomists who would do this sort of assessment for the price of a PhD i.e. for a damn sight less than the fees the regulator would otherwise pay to the consultancy arm of a big accountancy firm)

In the meantime, the "superstar" rhetoric needs put on hold., now. It's nastily insidious, because it taps into notions of natural talent, and for the most part is based more on prejudice than fact. So sure, sure, pay “superstar” bankers “superstar” bonuses if you want, only subject them to “superstar” scrutiny as well, if only to drown out the annual chorus of bonus bollocks we now get inflicted on us at this time of year (and save shareholder funds).

* This whole BBC notion of balance whereby people with opposing views are asked about the same thing doesn't achieve balance, it simply exposes double the volume of prejudice.