/ Money

This bank bonus culture has to end

Despite paying billions in compensation for mis-selling, the banks’ bonus culture shows no signs of abating. Does there need to be a major change in how banks do business?

When Which? invited Martin Wheatley, the incoming head of the FCA, to an event to hear consumers’ views about banking, one of the major gripes people had was the way banks sold products.

This type of upselling, where you’re sold another financial product when you only want to put in a cheque, has also been unpopular here on Which? Conversation. But worse than this, is that sales driven by commission can also lead to mis-selling.

Pressure to sell

Is it any wonder that the banks were mis-selling of payment protection insurance (PPI), when advisers at one bank, Alliance & Leicester, received bonuses that were six times larger for selling loans with PPI than selling loans without it? In the end, banks have had to pay out £7.9 billion in compensation for mis-selling PPI.

There is a huge disconnect between the pay received at the top and the pay received at the bottom of our banks – with branch staff receiving a low basic salary with the opportunity to earn significantly more in bonuses if they sell more products.

We’ve heard horror stories from bank staff who can’t bear the constant pressure to sell products to customers.

Give back your bonuses

At Which? we’ve been working hard to push banks and regulators to make changes. For example, we asked banks to claw back bonuses awarded to those executives who oversaw the PPI mis-selling scandal.

As a result, Lloyds has said it will claw back £2 million in bonuses and HSBC has indicated it will claw back bonuses, too. We want all other banks to do the same.

Banks should only recommend a product after looking at their customers’ circumstances, and shouldn’t be incentivised to sell one product over another. But most importantly, incentives for staff at all levels should be based on the customer service they provide, and not just on the sales they make.

Comments
Member

Basically YES – Banker Bonuses should end.

Member

I’m with my current bank as they advise me on what I want to do, understand my needs and don’t push me to buy products I dont want or need. Professional, efficient and ethics. What more do I need from a bank? When I need a product who will I ask? Someone who looks after me and my fianances, or someone who wants to just make a profit?

Member

Agree with you Karen – I want a bank that cares more about my finances than about selling me things I don’t need. One of my banks accosts me whenever I go in to pay in a cheque and asks me if I’d like to have a ‘chat’ with the manager – I’d be happy to if it weren’t for the fact that the one time I said ‘yes’ I had to have an appointment with a manager to discuss investment products that looked no good for me whatsoever.

Someone who can actually give impartial advice on things and isn’t trying to make a profit – that’s the sort of bank advisor I’d like to see!

Member
Sophie Gilbert says:
5 April 2012

This is the only irritating thing when I visit an RBS branch, being asked if I’m interested in one financial product or another. I always breath a sigh of relief when it doesn’t happen, which is less and less often now. I’m sure there are tellers who do hate having to even ask if their customers are interested in something they didn’t come to the branch for in the first place. Pity, because in 26 years of banking with RBS and receiving top class service at all the branches I have visited I only recall one occasion when I wasn’t served properly, and that was because the teller who dealt with me was a foreigner whose native language wasn’t English and his English wasn’t good enough. Not a bad record all in all.

Fat cat (love your picture) salaries, bonuses and pensions only increase the gap between the poor and the rich, making our society worse and worse and worse, and when they aren’t “deserved”, they add insult to injury.

Member
frances says:
5 April 2012

” Like the proverbial fish that doesn’t know what water is,
we swim in an economy built on money
that few of us understand.”

Time we educated ourselves.

Google the word “usury” or anything like that and read on.
You will be appalled.

Maybe the next mis-selling/hand-back-the-bonuses scandal will be
about the derivitives known as Interest Rate Swaps.

Member
Razzgox says:
5 April 2012

Quite simply people have to take responsibility for their decisions. Just follow one simple rule and most problems will go away. The rule? If it’s too good to be true, then it definitely (not probably!!) is. Or scientifically: You can’t get something for nothing.

So beware, you’ve only got yourselves to blame.

Member
frances says:
5 April 2012

Re : ‘You can’t get something for nothing.’

Banks do.
That’s how money is created.
Out of nothing and issued as debt.
When the debt is paid off the money disappears.

Meantime, there is the interest to collect.
Where does the money come from to pay that ?
More debt taken out by someone else.

And so on.
The man in the Counting House has it made.
Don’t you think ?
He is able to sell what he doesn’t have to buy.

Member
ian says:
31 May 2012

I agree. Its a topsy turvey world when my daughters partner tried to get a mortgage but was refused because he didn’t have a credit card. He had saved and didn’t get into debt. Equally I have just agreed to new credit card (only to save my Virgin Atlantic air miles), they send them with a large credit limit so I ask them toreduce it and get told that it may affect my credit rating.Its better apparently to have a high credit limit. The bansk need sorting out but i have no idea how to start a campaign that is likely to do any good

Member
Derek Wharton says:
6 April 2012

There is a lot of nonsense talked about bank ‘bonuses’. They are very rarely true BONUSES, simply profit-sharing, thereby hiding the true profits of banks and effectively defrauding shareholders (and avoiding profit tax). Add the bonuses to the declared profits and you can see why banks don’t want the public to realise how much they make from their customers.

When ‘bonuses’ are give to all or most members of staff in a bank, as in John Lewis, it isn’t based on individual effort beyond the norm.

A further issue regarding bonus awarded to senior executives for the improved performance of banks in the last year or two. Many years ago I was in a corporate planning position with what was then one of the largest banks in the world. In many years the profit from ‘free’ balances (cash in customer accounts giving no interest) was between 40% and 60% of total profit. A similar situation prevails now, banks give minimal interest and lend out the accummulated balances at anything from 5% – 25%. The banks, and customers who borrow, benefit from from the banks’ following the Bank of England ‘last resort’ rate. They don’t have to, but profit comes first and to hell with those who depend on their saving to survive. The Chief Executive is lauded and rewarded for doing nothing.

The Treasury and Inland Revenue must know this ‘con’ but as half the Cabinet benefit from their connection the the finance sector nothing is done.

Member
pat mary prior says:
15 April 2012

I would just love all the banker to have as high a bonus as they would wish! BUT for every £1000 that they receive free gratis and for nothing, I want them to employ a disabled person for a few hours a week, a month or hopefully years. That to me would help to redress the balance of such large employers of disadvantaged humans being thrown onto the scrapheap when REMPLOY factories close. Following a conversation with a professional medical person I was horrified to learn what a difficult future an awful lot of these people face after their lifeline of a job of work has been stripped from them through no fault of their own. Does anyone agree or have a better solution?

Member
Derek Wharton says:
15 April 2012

I have written before. It is ‘bonus’ when a minority receive a reward for exceptional performance. When a large proportion of staff receive an award, or as in many cases virtually all members of a bank get the reward, it is profit sharing and should be taxed differently. It is in effect defrauding the shareholder and the taxmans. It is a relatively new phenominen, brought about by Thatcher’s ‘Big Bang’, the deregulation of the finance sector (coupled with the destruction of manufacturing).

This Government would have done a lot more to curtail the practice, but they would upset their banker friends AND a high proportion of MP’s, including many Cabinet members, who have very strong links (often financial) with the industry.

The very recent awards to very senior bankers for their gallant efforts to improve performance ignores the contribution of King (BofE). When in my corporate planning role the profit of banks (when there was no interest on current accounts) were large comprised of the ‘endowment’ effect of zero balances, which could be ‘lent out’ at anything from 5% to 25%. Much the situation now, so very little credit to the bankers, more to those mugs – often pensioners -whose savings enable banks to make large profit for minimal effort.

DFW

Formerly:
Corporate Planning Manager, National Westminster (pre-RBS), London
Head of Training and Development, William’s and Glyn’s, London & Manchester
Head of Management and Organisational Development, HongKongBank Group, Hong Kong (now HSBC)

Member
tubaman says:
16 July 2012

1 The City of London believes it can get away with anything. The politicians are in the pockets of all the financial industry bosses. many of them sit on the boards of financial and other institutions and they all intend feathering their nests with nice little sinecures in the City when they tire of playing politics. Parliament was set up by the City to look after the merchants and that is all it has ever done.
2 Bankers and others in financial services should have their pay very strictly regulated. It is criminal that ANYONE gets more money in a year than most people earn in a lifetime. If this means we lose a few crooks to America, wonderful, I would personally enjoy shepherding them onto a very leaky boat and watch it sink Mid Atlantic. Good riddance to a very smelly load of rubbish. I think it would rid us of a very sick culture that we can very well do without
3 Bob Diamond and all the other chief executives plus all their underlings involved in the Libor scandal should be in jail. NOW we don’t need to waste more money on a trial or all these expensive investigations. Jail them now. The ex chief executive of RBS should also be jailed and all his assets seized to repay the people of this country thathe robbed. All those taking part in riots last year are in jail these financial crooks have done millions more damage and they are rewarded for it. this is what you call justice? This country is SICK – the demented kangaroo, Murdoch, and all his family and underlings know it and have contributed hugely to it so that they can profit from the laziness of ordinary people who couldn’t care less what is happening so long as the beer keeps flowing