What are we to make of the current debate on bonuses? I ask because in my interactions with marketers over the past week I have been surprised at how the topic has split our profession right down the middle. As many marketers appear comfortable with Stephen Hester receiving a bonus of almost £1m from The Royal Bank of Scotland as take issue with it.
That strikes me as odd because, if you are a proper marketer, there are only two appropriate reactions to the RBS bonus issue – outright horror and utter rejection. RBS’s misguided strategy in originally offering the bonus and Hester’s actions in initially accepting it are equally disgraceful.
Don’t worry, my argument is not some neo-socialist claptrap about the value of one chief executive compared with ten nurses. In a capitalist economy, those with rare and more valuable skills should be paid more than others. My argument is founded on marketing.
Let’s start with the prime directive of marketing. We fulfil a very important function in every firm in linking the thoughts and preferences of the external market with the organisations that serve these consumers. It’s clear that, as RBS chairman Sir Phillip Hampton admitted last week, banks have lost track of public sentiment and have been surprised by the level of antipathy this new round of bonuses has caused. Marketers should, in theory, have been one of the few executive functions that were not taken aback by the response to RBS’s bonus plans because we understand the market and represent these views to others inside the firm.
And then there is the even thornier issue: What was Hester’s bonus actually for? A 60% decline in share price during your tenure does not suggest any bonus is justifiable. In fact, Hester should be grateful to have kept his job at all.
RBS will soon also announce that it generated £530m in pre-tax profits for 2011, yet it will pay out a total set of bonuses this year of £500m to senior employees. What kind of firm underperforms in the market and then spends its profits on bonuses for senior people? What a disgrace.
What kind of firm underperforms in the market and then spends its profits on bonuses for senior people?
You’ll excuse my anger on this last point. Throughout my career I have been criticised, patronised and generally demonised for the lack of “rigour” and “ROI” inherent in branding by senior finance and accounting executives. Well, knickers to them. The returns on branding far outweigh anything RBS has recently produced and most marketers would not even dream of taking 1% of the resulting incremental gains, let alone 50% of them.
I know a small army of good brand managers and agency planners who earn less than £100,000 a year and who could each easily point to millions in proven ROI from their campaigns, pricing and positioning work. These naive marketers have been working for years under the mistaken assumption that you deliver the goods in return for a good salary. If only they had realised that, like the bankers at RBS, they could have put their hand back into the trough for a ‘bonus’ based on a 50% share of the profits their strategies had bestowed on their organisations.
And let’s not forget the brand consistency argument either. As CEO of the business, Hester is perhaps more accountable to its brand values than anyone else. The good news for RBS is that its stated values offer clear and unarguable direction on the matter of the 2011 bonuses. The bad news is that all six values point (in big flashing neon letters) to not paying a single penny.
RBS’s first value is that it “understands its customers”. Surely a bank that delivered on this principle would have recognised the pain and anger that these huge and unjustified payments would cause consumers during such a bitter recession and not have paid any bonuses.
RBS also claims that it “values its people” and “bases pay on performance”. By any standard, Hester’s performance does not justify the extra pay. RBS also claims to “conduct itself in a way that protects its reputation”. This, again, is a direct contradiction to what the bank has achieved with its bonus payments.
Another stated RBS value is to “understand and manage the risks it takes”. That’s not how the whole bonus farrago would appear to most people. And, finally, RBS claims to “manage its finances carefully”. Well, that’s bollocks too. I would suggest that any company that pays out in combined bonuses what it is predicted to make in pre-tax profits is behaving in a quite egregious and unprofessional manner.
I wonder if any of the RBS branding team is in line for a 2011 bonus? What a fascinating conundrum that would be.
RBS is wrong to pay its bonuses this year not because of any moral or societal issues but because it is bad business. The bank’s customers (who, let’s remember, are also its owners and salvation) resent it. The performance of executives does not justify it. And the brand values of the company preclude it.