Crack the Crunch with the Crunch Breaker
Bonus culture Posts
How to make (and lose) a fortune
June 28th, 2009
Here, in a slightly different format, is how Nick Leeson, the rogue trader, managed to bring down Barings Bank in 1995.
It also shows how easy it is …
Bet someone a pound that a coin will come up heads.
If it does, you win a pound.
If you lose, propose doubling the stakes and playing again.
This time, if you win, you win two pounds, more than making up for the pound you lost last time.
And if you lose again, propose doubling the stakes again to four pounds.
This time, if you win, you win four pounds, more than compensating for the three pounds you lost last time.
If you lose, just propose doubling the stakes again to eight pounds.
As long as you keep playing until at last you get ahead, you never lose money.
It sounds like a great game.
The only problem is that there is a small finite chance that you’ll keep on getting tails.
Unless you have infinite money, you can’t keep doubling forever.
If you get twenty tails in a row, you will have lost over half a million pounds.
Dare I say it? A bonus can be a good incentive!
February 13th, 2009
It’s a touchy subject right now. Prescott wants an end to the bonus culture. Brown says it all has to end. Even Obama says things have to change.
And it does. But not completely.
It’s easy for us all to be swept along by the anger being felt by the big bank bailouts which have been made many times more poignant by leading banks insisting on bonuses being paid out for 2008.
But let’s get things straight. Big banks and crazy City bonuses are very different from smaller businesses giving incentives to key staff to help drive the company forward. Sales and key staff need to be incentivised.
Only this evening on an LBC radio phone-in, the presenter was demanding the end of all bonuses. He didn’t get a bonus, he claimed, so why should anyone else?
The truth, as always , is somewhere in between.
City bonuses must be made more balanced and based on longer time scales. The reason why Lehman Brothers went into overdrive (and overkill) was that big incentives were being given to make money fast, rather than think of the consequences over a longer period of time.
UBS have just re-written their bonus structure, giving key staff 40% of their bonus now (based on success) and the remaining 60% being put into an escrow account depending on the performance of the business the following year. This seems logical for this type of industry.
For smaller businesses, it’s vital that success continues to be recognised. Set good clear personal key performance indicators (KPI’s) and make sure those who matter are rewarded on the overall profitability and performance of the business.