Bank bonuses – a failure of procurement?

Do we get overly hysterical about bank bonuses?  Is it any worse than footballers' salaries (over which my wife for one gets highly exercised)?

I think it is the apparent lack of a clear link between competence and reward that bugs people; we just don't believe that quite so many people are worth so much money.

And it does seem to be a market failure in there somewhere.  If it is so profitable a business to be in, why don't see new entrants come in which in classical economic terms would reduce surplus profits for incumbents?  If I made a £1 million from blogging this year, you can be pretty sure that there would be an awful lot of people competing with me next year!

So the barriers to entry may be one of the issues here - it's  lot easier to start a blog than a bank.  And ironically, the more constraints governments put on the banks, the harder they make it for new entrants to drive down the profitability of existing firms.

But is there another issue? Banking/ financial services are one of the last areas that go untouched by procurement professionals in most organisations.  Whether that is corporate finance and M&A advice, bond issuing or similar, pension fund mandates, hedge fund fees... a minimal percentage of such spend is 'properly' procured with competitive selection processes, negotiation and performance based contracts.  OK, the CEO might still choose the expensive option - it is the firm's existence at stake in some cases - but any process would be better than the combination of ignorance, disinterest, arrogance and corruption* that is the attitude of many organisations towards how much they pay for 'City' services.

Now wouldn't that be a worthwhile, publicly popular and high-profile campaign for the procurement professional Institutes to get behind? I've even got a slogan:

"Let's Buy Banking Better"

(* Yes, I'll call it corruption - which sector do you think is the biggest spender on corporate hospitality and Christmas gifts?  And how many chairmen of large corporates know that their tame investment bank will give them some lucrative consulting work when they step down?)

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