I understand the flat fee/exams examples, but the bankers generally say they need a % of their profit as an incentive to work hard. So if you take that as the motivation, then a % system makes sense, as the more profit you make the higher your reward.
I'm always surprised by the argument that bankers, unlike other people, cannot be expected to work hard for their salaries, especially when they get such very big ones. However, even if we accept that bankers are afflicted by a peculiar combination of venality and laziness, there are plenty of more sensible ways to organize a reward system. For example, you could set them targets, and pay them fixed cash rewards for beating them. Or you could reward them with a percentage of their basic wage.
Almost anything, in fact, would be more sensible than rewarding them with a percentage of the profit they have made. No one would suggest rewarding a particularly productive baker with extra loaves of bread, after all - and this is a similar idea: it just so happens that the medium bankers work in is money. Or, look at it this way. Imagine you have two bankers. One is in charge of a fund of £1 million, and by hard work and judicious investment (and maybe a smidgeon of luck) he increases its value by 20% - a profit of £200,000. The other is in charge of a fund of £30 million. Over the same period he manages to increase its value by a less-than-impressive 2%. Despite this, he has made a profit of £600,000 - and therefore will get three times the bonus paid to his more assiduous and skilful colleague.
I'm sure that the details of the incentive schemes actually used by banks are more complicated than that, but it makes the general point. Schemes based on a percentage of the profit offer a marginal incentive to hard work, but much more incentive to getting control over bigger and bigger amounts of money, because that's the easiest way to generate large profits and hence bonuses.
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I'm always surprised by the argument that bankers, unlike other people, cannot be expected to work hard for their salaries, especially when they get such very big ones. However, even if we accept that bankers are afflicted by a peculiar combination of venality and laziness, there are plenty of more sensible ways to organize a reward system. For example, you could set them targets, and pay them fixed cash rewards for beating them. Or you could reward them with a percentage of their basic wage.
Almost anything, in fact, would be more sensible than rewarding them with a percentage of the profit they have made. No one would suggest rewarding a particularly productive baker with extra loaves of bread, after all - and this is a similar idea: it just so happens that the medium bankers work in is money. Or, look at it this way. Imagine you have two bankers. One is in charge of a fund of £1 million, and by hard work and judicious investment (and maybe a smidgeon of luck) he increases its value by 20% - a profit of £200,000. The other is in charge of a fund of £30 million. Over the same period he manages to increase its value by a less-than-impressive 2%. Despite this, he has made a profit of £600,000 - and therefore will get three times the bonus paid to his more assiduous and skilful colleague.
I'm sure that the details of the incentive schemes actually used by banks are more complicated than that, but it makes the general point. Schemes based on a percentage of the profit offer a marginal incentive to hard work, but much more incentive to getting control over bigger and bigger amounts of money, because that's the easiest way to generate large profits and hence bonuses.