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Carol Craig is the Centre's Chief Executive. She is author of The Scots' Crisis of Confidence, Creating Confidence: A Handbook for Professionals Working with Young People, The Tears that Made the Clyde: Well-being in Glasgow and The Great Takeover: How materialism, the media and markets now dominate our lives. She is Commissioning editor for the Postcards from Scotland series. Carol blogs on confidence, well-being, inequality, every day life and some of the great challenges of our time. The views she expresses are her own unless she specifically states that they reflect the Centre's thinking.

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Posted 15/01/2014

So once again bankers’ bonuses are back in the headlines.  What amazes me is the lack of depth in the media discussion on the topic. As Letting Go, the latest book in our Postcards from Scotland series,  points out the notion that people are essentially self-interested and motivated by money basically comes from economics. And it is a notion which has become dominant in our contemporary world as it has become overrun by Neoliberal ideas.
 
Professor James Buchanan influenced the Thatcher Government’s attitude to public sector management and he saw people as ‘self-interested maximizing agents’.  This is why the concept of ‘public service’ fell out of favour. However, as Professor Amartya Sen pointed out, the world wouldn’t work if we all went round seeing others in this way. Indeed he used the following scenario to satirize Buchanan’s ‘public choice theory’:
 
‘Can you direct me to the railway station?’ asks the stranger. ‘Certainly,’ says the local, pointing in the opposite direction, towards the post office, ‘and would you post this letter for me on your way. ‘Certainly,’ says the stranger, resolving to open it to see if it contains anything worth stealing.
 
What’s more contrary to what we are constantly told by the media and politicians people aren’t that motivated by money. For decades now countless psychological studies have shown that people are not primarily motivated by external rewards such as money and status; they are intrinsically motivated and often care much more about fulfilling personal goals, relationships and finding meaning in their activities.
 
One of the reasons why bonuses originally caught on is that countless studies have shown that if people are doing something that they wouldn’t actually choose to do because it’s not intrinsically satisfying – such as digging holes or working on an assembly line – then if you pay them to work harder or quicker by offering bonuses then the extra money improve performance. But as soon as the work requires any input from the worker him or herself then external rewards such as payment often decreases motivation and performance. One explanation is that payment makes people feel like wage slaves and denigrates the activity. Given the nature of the modern workplace there are very few jobs which don’t need some amount of personal input from the worker. 
 
So the idea that these bankers need to get paid huge sums of money to do a good job is farcical. Sure in the current set up they wont want to get paid less than people doing similar jobs and so might leave in pursuit of better remuneration.  But this is largely about ego and culture: it is a part of the current system rather than an inevitable consequence of people’s self-interest or greed.

An independent  High Pay Commission published its findings in 2011. The Commissioners assert that the move to high pay started with the 1979  Thatcher Government which had a new attitude to top pay: it believed  that linking executive pay to performance would create a dynamic, entrepreneurial management elite at the top of business. However, as the report points out, 'no reputable study' has linked executive pay with company performance and this has become increasingly obvious in recent years when executives have been awarded huge bonuses even though the company's performance has decreased.
 
It isn't only the private sector which pays bonuses: two million pounds a month is given in bonuses to Government workers and various senior managers working in public sector industries, or arms length organisations, have been paid performance bonuses on top of high salaries often for indifferent performance.
 
The High Pay report rightly points out that 'Over the last 30 years we have lost touch with what fair pay is. Indeed it has been undermined by a process that simplified individual motivation to that of self-interest.' 

Those defending gigantic remuneration packages argue that high-paid leaders are uniquely talented and will be poached by other countries if they're not given what they want. However, there's no evidence that CEOs will, or can, move easily from one big company to another. What's more it's not good for companies to pay excessively high salaries and bonuses to CEOs. Peter Drucker - the foremost management expert - argues: 'If the top executive in a company gets a salary several times as large as the salaries paid to Number two, Three or Four men, you can be pretty sure that the company is badly managed.'

Malcolm Gladwell, from his reading of the literature, goes further arguing  there's a 'talent myth': it's effective teams that usually underpin healthy organisational performance, not high-profile charismatic leaders who often score high on narcissism.
 

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