The bonus culture

One of the leading commentators on the railways, Christian Wolmar, has blogged about the bonus culture.  I make no apology for reproducing his post:

One cheer for Iain Coucher for foregoing part of his bonus. But listening to him on the Today programme yesterday, it was clear that he - and indeed the executives like him - do not understand the bonus issue.  Coucher stoutly defended the bonus system, despite John Humphrys rightly raising the question of why he needed a bonus on top of his £12,000 per week salary.

And frankly, Coucher could find no answer to that. The peculiar circumstances of Network Rail make the need for bonuses even more questionable. It is not, in the normal sense of it, a capitalist company but its income is fixed and the main task of its executives is to ensure that costs are kept down.  That is the day job and it seems incomprehensible to think that they would only do that properly if they have the incentive of a bonus. Perhaps someone could explain to me why that incentive is necessary.

More important, though, Coucher does not understand the wider political context of what is going on. He should order his fellow top executives not to receive any bonuses or else he will find that Network Rail is mired in a pigs in the trough scandal when the amounts are announced, something the railway, which will need to fight hard to keep its funding, does not need. It’s a wider issue, Iain, get it??

With the Treasury Select Committee publishing a report today which points the finger very clearly at the bonus structure as being one of the major causes of the banking crisis, it is clear that Network Rail should re-examine its structure to ensure that the bonus system for top executives is scrapped. I am not even sure that the system for the rest of the workforce should be retained. Rather, they should be paid a decent wage with any money available for bonuses merged into their salaries and if they do not do their job properly, they should be warned and dismissed, just as used to happen. The basic point is that people should be paid for doing a job and should not require incentives to be doing it properly. It is just a lazy form of management.

Absolutely.   The principles of his argument equally apply elsewhere.