RBS Bonus Spat an Insult to Shareholders

Last Updated Dec 4, 2009 5:39 AM EST

The board of Royal Bank of Scotland (RBS) are throwing their toys out of the pram: if they can not pay out £1.5 billion in bonuses for being such good boys and girls this year, they will all stomp out and resign.

Forget the idea that this is pay for performance; it is not. This is the same bank that exists only because it has been bailed out to the tune of tens of billions of pounds, paid for by the taxpayer. It is only making profits because the government is pumping the banks full of free money under the guise of quantitative easing.

But before we get on our high horses, we should understand what is going on here.

We are witnessing the next stage of the revolution taking place in modern management. Karl Marx predicted that the workers would be oppressed by the capitalists and would eventually revolt against them. Adam Smith predicted that when the shareholders become remote from a firm, then the managers will start running it for their own benefit.

RBS has been taken over by the managers, who run it for their own benefit. The workers no longer revolt against the shareholders: the shareholders have to revolt against the management to try to stop the managers ripping them off. This is what the government is now trying to do. The same effect is at work with CEO pay, which has risen from 40 times to 80 times average pay in the last ten years, while shareholders have enjoyed negative share price growth for such highly paid performance.

In the corporate world (unlike sports) pay is no longer about performance. It is about power. The more power you have, the greater the rent you can extract from the firm. It is as simple as that. So the crisis of capitalism is not about exploited workers; it is about exploited shareholders.

As long as shareholders are not involved in the firms they own, we can expect to say the managerial power play continue. Ethically there is not much to choose between the failed mercenary Simon Mann and the bankers: the main difference is that the bankers will get their splodge of wonga, while Simon Mann got his stretch in jail in Equatorial Guinea. It would be nice if the outcomes could be reversed.

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  • Jo Owen

    Jo Owen practises what he preaches as a leader. He has worked with over 100 of the best, and a couple of the worst, organisations in the world, has built a business in Japan; started a bank (now HBOS business banking); was a partner at Accenture and brand manager at P&G. He is a serial entrepreneur whose start-ups include top 10 graduate recruiter Teach First and Start Up, which has helped over 250 ex-offenders start their own businesses. He has and has spent seven years researching leadership, strategy and organisation in tribal societies. His books include "Tribal Business School", "How to Lead and How to Manage." He is in demand as a speaker and coach on leadership and change. His websites include Tribal Business School and Leadership Partnership