31 October 2008

Central Bank: scrap bank managers’ bonuses
In Friday's Trouw, Central Bank President Nout Wellink argues for scrapping the bonus system for bank managers.

Wellink says that the bonus system in the financial sector leads to risks which go against the interests of society as a whole. According to Trouw, bonuses based on the number of transactions concluded by bankers lead to irresponsible and socially undesirable behaviour.

Wellink, who made his statements at a symposium on integrity, said that the Central Bank would evaluate whether bonus structures lead to the taking of irresponsible risks.

As far as Wellink is concerned, bonuses should be scrapped altogether.

"I have no sympathy for the system as such, because before you know it, incentives start having the wrong effect". The Central Bank president would much prefer a system based on "a decent, competitive salary".

During the discussion following Wellink's introductory speech, he lashed out not just at top CEOs but also at the bonus system introduced across the organisational structures of banks. "There has been widespread stupidity as well as inadequate insight and a lack of self-criticism among bank CEOs".

Wellink added that there have also been problems at lower organisational levels. "All too often, there was a lack of integrity on the workfloor"

However, the central bank president added that "more than the behaviour of individual employees, the so-called 'tone at the top' was key to sound operational management. He emphasised that integrity as a foundation to be trusted was of vital importance to the whole financial sector.

In addressing bank CEOs, Wellink said: "It is your responsibility to make the right choices. If you fail to make choices, you will find that the Central Bank takes its role as watchdog of integrity seriously".

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