Thursday, 27th November 2014

Banker bonuses – opinion of economist Klaus Schwab

money-1.jpgCommercial feature - It is nearing the end of the year, and the banking system is preparing to pay out its end of the year bonuses. Ever since the financial crisis of 2008, this practice has become an increasingly large source of anger among the UK public.

Governments throughout the world have been debating whether and how to regulate this payment system, which has been seen by many as a moral outrage. Critics of the payments system also believe that it encourages reckless, short term behavior that can be financially damaging in the long run.

With another bonus season approaching, the British government has responded by imposing taxes on bonuses. Other governments have also attempted to earn back some of this money. In the US they have set a cap on the bonuses, and the European Union has formed new rules that will regulated these payments. Nevertheless, the bonuses will occur yet again.

There are some legitimate reasons to argue for the bonuses, such as the fact that some of them are actually commissions, and that since the salaries are capped in a tight economy, the only incentive that the banks can offer are bonuses. Even so, the outrage continues.

All of the outrage may be a sign of a deeper resentment, however. At the beginning of the year, Klaus Schwab, the founder of the World Economic Forum, explained that he felt the source of the problem was much deeper than bonuses. The real problem, he argued, is a shift in the culture of the entire business arena.

He explained that the purpose of the World Economic Forum was to create an arena in which managers could communicate with their stakeholders. “Stakeholders” was a term that he had used to refer to all of the individuals who were affected by business. He felt that there was once a time in which business was widely viewed as an organization that provided social good. Business served a purpose.

He no longer feels that this is the case. He went on to say that “the purpose of an enterprise – to create goods and services for the common good – in society has been replaced by a purely functional enterprise philosophy.” The end result is that business now exists only to pursue profit. Businesses will only engage in social programs if they feel that it somehow helps their image and can turn a profit. Everything has a monetary value associated with it in this new economy, and the only solution is to reverse this ideology.