Random Thoughts on The City, Wall St & Capitalism

It's December, people are singing carols at train stations and shopping malls, letters to Santa are being written. Yes it's that time of year again - financial year end and bonus time, either this month or in the following months. A time of much heartache, emotional distress and intrigue. That's just the senior management side of things, imagine how the worker bees feel. The process in most firms is a mystery.Who gets what when and HOW much. Are they worth it? what I did I do wrong ? etc.The speculation of winners and losers in winning at the loser's game provides good fun well into the new year for all involved. The bonus, VICP, performance-related compensation, whatever you want to call it, is in most cases a purely discretionary gesture. There is no entitlement or obligation to pay anything. Why do so many people forget that?.

Here are some basic rules for a general theory of bonus pool allocation for senior managers :

• If you can possibly get away with it, under no circumstances pay anything out at all. There are only two situations where you will need to pay a bonus. Firstly if the employee can point to a direct contribution to P&L. Yes that's how much I made, that' s my cut. Secondly in the case of contractually guaranteed bonuses. ONLY if it's in writing. Oral contract, not worth the paper it's not written on. This approach should ensure there is much more left for the management pool. Remember it always looks good to hand some back.

• Never reward top peformers adequately. This will only set a precedent for the following year, where the bar will be set higher, it has the additional dis-incentive of making them take their foot off the accelerator for the rest of the year. Remember the old adage from the organisational motivation courses. Money does not motivate in the long term.So why bother. If we are agreed that 99.99% of all jobs can be done adequately 99.99% of the time by 99.9% of any random selection of people, then it follows managed turnover is a good thing. The next set of hires should be cheaper and younger, therefore more gullible and energetic than the chumps in the current jobs.So save by not giving good bonuses and then save again by hiring cheaper replacements.It's a virtuous circle.

• Always give the best part of the bonus pool to your friends, and or good looking employees. We all want to see our friends happy rather than complete strangers it's only human nature. Good looking people of both genders are a joy to have round and are generally less bothersome than the ugly harder workers. Ugly employess have to work harder because they are not good looking, ergo whether they receive a bonus or not they will continue to work hard. If they don't they should be managed out for poor performance. They can be replaced by cheaper and younger ugly people of which there is an excess supply. That's the nature of the labour market. In case any mangers feel uncomfortable doing this ,bear in mind there is no country in the world with legislation that regulates this area.That is to say it's not illegal to employ people on the basis of their attractiveness. The recent case of phamaceutical sales reps being recruited from college cheerleaders should give you some comfort.( see the article at the end of this blog- below)

• Always reward the bottom 20% of performers by at least 40% more than you would a top performer.There are two reasons for this firstly this will make them unexpectedly happy for a while, which should last well into Q1 next year, but better still when you fire them they are less likely to be difficult and will ensure smooth handover of their work.Why would you take this counter-inuitive approach? Well these workers provide the pool you will have to sacrifice in Q1 and maybe mid-year to reduce headcount to meet the unrealistic budget targets that will be set by your own managers if revenues become volatile or other costs go up. If neither of these happens you can manage them out anyway in Q3 leaving you with an even larger bonus pool for the year ahead. Like I said it's a win win situation.

Follow these simple guidelines outlined above and be merry.Don't worry about the long term. Manage for the short term, manage for the stock price, but above all be kind to youself.It's tough at the top.

RB

Excerpt from International Herald Tribune 28/11/2005 follows:

As an ambitious college student, Cassie Napier had all the right moves - flips, tumbles, an ever-flashing America's-sweetheart smile - to prepare for her job after graduation. She became a drug saleswoman.
Napier, 26, was a star cheerleader on the national-champion University of Kentucky squad, which has been a springboard for many careers in pharmaceutical sales. She now plies doctors' offices selling the antacid Prevacid for TAP Pharmaceutical Products.
Napier says the skills she honed performing for thousands of fans helped land her job. "I would think, essentially, that cheerleaders make good salespeople," she said.
Anyone who has seen the parade of sales representatives going through doctors' waiting rooms in the United States has probably noticed that they are frequently female and invariably good-looking. Less recognized is the fact that a good many are recruited from the cheerleading ranks.
Known for their toned bodies, small skirts and persuasive enthusiasm, cheerleaders have many qualities that the drug industry looks for in its sales force. Some keep their pompoms active, like Onya, a sculpted former college cheerleader who on Sundays works the sidelines for the football team Washington Redskins and who asked that her last name be withheld, citing team policy. But on weekdays, she urges gynecologists to prescribe a treatment for vaginal yeast infection.