I work in a bank and as a result, each year I’m involved in the annual bonus game. 
Disclaimer: Though I work in a bank, I’m not a ‘banker’ per se, but a Risk Analyst. This means that I am a cost to the firm rather than a revenue generator. As a result I didn’t get a mention in this article and any bonus I get is a percentage (not multiple) of my salary!
Over the years I’ve read various documents produced by well meaning HR departments that try to explain how fair, transparent and systematic the bonus process is. Working in a non-revenue producing part of the bank, objectivising this process is of course not as easy a task as if I had sales/pnl targets to meet.
So far every bank I’ve ever worked at has failed completely to make this anything other than a game.
Despite their best efforts to remove subjectivity from the process, as far as I cant tell it generally work like this:
- Your boss gets allocated a bonus pot (by his boss)
- He spends 3 days playing with the numbers in a spreadsheet (i.e. carving the pot at will)
- Any subordinates with subordinates repeat the above process with their pot
The key thing to remember each year when you’re playing the bonus game is that the end result generally bears no correlation to your achievements throughout the year or the effort you’ve put in.
I’ve had good years, but I’ve also had years where I’ve slogged my guts out, worked crazy hours, delivered impressive results, gone the extra mile and then some and not been rewarded.
Despite this lack of correlation there are some things that are certain to happen throughout every year in the lead up to B-Day….
3 Months to go
This is generally not the time to be dropping the ball. If that big project you’re working on is going to fail to deliver you need to start figuring out who you’re going to blame pretty quickly. On the other hand if you’re going to impress, now is the time to do it – break out the new suit and dapper up for the run in!
2 Months to Go
The guy round the corner that usually gets into work at 9:15 am each day suddenly starts arriving at his desk 5 minutes before the boss gets in each morning. Everyone knows what he’s doing. Everyone resents him for it. Some even join in. Most (like myself) just scoff and pray that such obviously infantile behavior is punished, not rewarded by the game.
Whether or not this kind of tactic works or not ultimately depends on how stupid your boss is.
1 Month to Go
About a month before B-Day the rumors start. The [bonus] pot is down. The rumors always come from up above. The pot is always down. I’ve been working in banking for 13 years and the pot has always been down. Even when the papers say the pot is up, the pot is apparently down. Revenue is up, earnings are up but the pot will be down, that’s just the way it is.
There is always a very good reason of course. Litigation reserves, higher capital requirements, restructuring costs, lower revenue, more re-investment, balance sheet reduction, reputational risk, corporate responsibility etc etc. The pot is always down.
1 Week to Go
It’s too late. The pot has been carved. The pie sliced. The spreadsheet saved. The letter printed. The decision made. The only thing left to worry about now is exactly what day the white envelopes get handed out.
B-Day
Everyone sits at their desk waiting for the HR bod to appear outside the boss’s office armed with a stack of white envelopes. The white envelopes contain the number (or lack of) that you’ve been waiting for all year.
Was it all worth it? The long hours, the pampering of the boss’s ego, the never ending projects, the hideous commute, the mind numbing conference calls…..only the white envelope can tell you the answer.
Once the envelopes have arrived, the waiting is over….it’s show time!
Show & Tell
The order in which you’re called in to be told your fate is crucially important. I’ve heard rumors of boss’s calling in their subjects in size order (bonus not height)…or is it reverse size order? Whatever the order (alphabetical, size, golf handicap, closeness of friendship etc) the order is always a source of debate among the worried workers outside his/her office.
The one thing that makes this whole charade so amusing is that (as a general rule) nobody has a clue what their colleagues earn. In my contract is a small paragraph that forbids me discussing my compensation numbers with anyone.
This isn’t like the public sector where pay grades are clearly defined and you all know roughly what each other are earning. Often vast inequalities exist in terms of both basic pay and bonuses. Generally your corporate title is not much of a guide as to how much you’ll bag at year end.
This is what makes B-Day so exciting for the observer. No matter what happens there will always be jealousy, envy, greed, disappointment and sometimes elation swirling around the office!
The Envelope
When you get the nod, in you go to the boss’s office.
Before the envelope is opened the reasons (see ‘1 month to go’ section above) are repeated. There’s always a reason. Next you get told that this is not an opportunity for debate or questions. Once you’ve been told the number you’re given the envelope as a memento and are told who to send in next.
The Eyes
Normal etiquette dictates that you keep your poker face on and return to your desk no matter whether it was good or bad news. Keep cool and act as if nothing has happened. Text your loved one the good/bad news and get back to your desk so you can observe the rest of the drama unfold without worrying anymore about your own fate.
I’ve seen people emerge with their envelopes in hand, tears (not of joy I hasten to add) rolling down their faces. I even witnessed one lady emerge in a rage before ripping the envelope in half, throwing it on the floor and storming out of the office, never to return. B-day is a fantastic day to people watch.
A friend told me a story about a colleague who broke down in tears after getting his 5 figure bonus one year because he was expecting another zero and it wasn’t enough to pay for his recently acquired luxury ski chalet.
Bonus (pronounced bo.nus) n.pl.
Definition: Something given or paid in addition to what is usual or expected
Each year I’m amazed that people forget that this is a bonus.
Nice post and good to have an insight from the “coal-face”
Yes, what a fabulous charade it is! I’m surprised nobody has made a reality TV documentary in a bank or hedge fund ahead of bonus day yet. Surely one would (foolishly) be up for the publicity.
Just a note — there are some private sector firms who do full pay disclosure. E.g. Whole Foods Market in the US. In fact, there’s one or two where you actually vote for your colleagues’ pay! (Can’t remember who, I think a niche distiller but perhaps I’ve had one too many of its products. 😉 )
It really would make fabulous TV.
I’ve floated the idea that they should just post everyone’s comp up on a notice board in the office! If they did add transparency to the process I’m sure productivity would soar!
As a bank manager involved in bonus allocations, I confirm that is how plays out. I guess the only thing missing is reasoning behind bonus allocations… you would not believe… and this is what I am not proud of… but ultimately the boss need to run the organization…
Brilliant post! I’m in the IT industry and the big company I worked for a while ago worked exactly like this for our bonuses! Except with less tears and more poker face. It was also split up into quarterly bonuses instead of a single annual big bonus, so the fun happened frequently.
Fantastic post, and insight into the bonus lottery (applies in other industries as well as banking, but doesn’t make the papers like the envy about bankers).
I also think someone could make great TV about this (can you patent script ideas 🙂
Look forward to keeping up with your posts in the future
FI UK
This all rings very true for me working in IT as well, but for the gambling sector which I can imagine isn’t all that far removed from banking and finance. I’m sure the bonuses here are much smaller and people are not counting on them to pay for luxury ski chalets though as I’ve never seen anyone go home in tears!
Having said that I’ve heard many colleagues talking about using their bonus to pay off the credit card bills and so on, so they are clearly relying on it in some way which is quite sad. Often these are the same people that when you ask what they’ve been up to the answer is generally “not much”so I have no idea what they are blowing their money on! Just ridiculously inefficient spenders I guess?
The correlation between effort, performance, and bonus is weak here as well and generally just depends on how the larger corporation has done, and how well our department bosses can negotiate the bonus terms. I worked my butt off last year and got the same bonus in real terms (I.e. not percentage) after tax as I did 3 years ago, when I didn’t work as hard and was on a much lower salary. Go figure! Obviously tax doesn’t help that situation but it was mostly due to the lower percentage given due to the company not doing so well that year (compared to their targets that is, they still had huge growth. I guess the bosses didn’t negotiate so well that year. Again go figure)
This year I’ve taken my foot off the gas and will get a much bigger bonus so I guess it’s all swings and roundabouts but it doesn’t exactly inspire productivity so much does it?
Anyway great article, thanks!
Interesting. I work in a food manufacturing company where we try to work with a bonus system and reward via specific, measurable objectives, but it’s much the same charade in the end. How much of a big success or failure can usually be attributed solely to one individual? You often achieve or fail due to the workings of someone or something else. I work in sales, so we’ve always been target and bonus orientated, but the company I work for now has everyone on some sort of bonus, from the PA’s to the Health and Safety manager. I see this elsewhere in the private and public sector and think that it’s just another thing that banking has to answer for. They’ve helped turn the bonus culture into something that everyone thinks they should have a slice of. When I started working in the Eighties, the thinking was more that you’d much prefer a steady salaried job to one which had a bonus as part of its remuneration. I really think that it’s not a helpful tool and that there must be better ways of working out there, but that’s probably due to the dwindling pots I’ve been landed with over the last few years!
Enjoying your site.
I agree totally that a more salary focussed remuneration culture would benefit all. Just look at Germany where employment is much more stable and long term than here in the UK. From what I know bonuses are low, employee rights are high meaning companies take care in hiring the right staff and avoid a boom/bust mentality of hiring in the good times and firing in the bad.
I used to work at a company where this charade would happen for your annual pay rise. Do you get one or not? As a manager at that company, I knew there was a ‘pot’ and you had to sit round a table with the other managers and determine who out of your team deserved a payrise that year given the limit ‘pot’. Everyone else received a flat ‘cost-of-living’ rise instead or zero in some years. You had to score people and then work out who received a payrise based on the ranking. You called people into an office to give them an envelope and some ‘reason’ for the outcome. Some would be happy, others annoyed.
Bonus was a company-wide annual affair with it being % linked to your salary. The whole office would be buzzing on bonus announcement day. It varied from 0 to 22% when I was working there and would be paid in March/April. People would be talking about what they would be spending it on (not in the league for ski lodges and houses! bonuses not that big! an average priced car or holiday was the norm).
Since then, I have worked at companies where getting anything, including a payrise has pretty much been non-existent. Those bonus/payrise days were great while they lasted and for those ex-work colleagues still there, they don’t realise how lucky they are. At the time we thought of this as the norm, now I am outside this bubble, I realise how lucky I was.