Oh dear Vince

The government has a responsibility to impose restraint on the banks which it partly owns, and as a result of our pressure it will cut their bonus pools this year, and reduce the share of profits paid out in remuneration.

If it\’s remuneration it\’s not a profit, it\’s an operating cost.

Profits are the residual, what you have left over after you\’ve paid the staff…..

One comment on “Oh dear Vince

  1. This is technical point – what does he mean by “profit”? A number of companies refer to “gross profit” before admin costs including wages; a significant number of “financial services” companies report “profit before profit-share”, followed by “profit-share” followed by “operating profit”.
    If the company is regulated by the FSA it has to hold in a liquid or semi-liquid form (excluding fixed assets and intangibles etc) capital that is a %age of annualised fixed overheads. Basic staff salaries are a fixed overhead, profit-sharing bonuses are not. In nearly every case the FSA capital requirements far exceed the working capital utilised by the business so the balance has to be held in cash yielding, after tax, a negative real return, so it is in the interests of both staff and shareholders for a large slice of staff remuneration to come in the form of profit-share (aka bonuses). That is even before you look at the enhancement of job security (you get paid less in a bad year but are less likely to be sacked) and the feeling of fairness (if you work extra hard and boost the firm’s profits you take some of it home) and, possibly, increased staff motivation.
    Partly due to FSA rules becoming increasingly onerous and partly to to the 2000-03 bear market and the post-Lehman crash (and, in part, to the higher penalty for holding cash) there has been a move to reduce the real level of base salaries (a freeze in nominal salaries despite inflation) and increase the profit-sharing element. Vince fails to understand this so he thinks that banks (Barclays owns by far the largest execution-only stockbroker and one of the top five “advisory and discretionary” stockbroker”) are increasing the amount paid in bonuses to the likes of Jerome Kerviel.

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