Barclays (BCS), in the wake of its £290 million ($360 million) fine for manipulating the Libor rate, recently announced it was commissioning a top lawyer, Anthony Salz, to review the bank’s corporate culture.
Let me spare Mr. Salz the trouble and tell him what he’s going to find. He will discover that Barclays has an aggressive, performance-oriented culture where people are under a lot of pressure to deliver the numbers. There is a short-term focus, an intolerance of mistakes, a cover-your-backside mentality, and a lack of collaboration. People work long hours, and the work-life balance is poor.
The problem here is not Barclays—it’s the entire investment banking industry. This is just a description of the every-man-for-himself culture that pervades Wall Street and the City of London.
The underlying problem, of course, is money. If you pay big individual bonuses, you get results. You also get a toxic corporate culture.
We have known for years that individual performance pay works only under a very limited set of conditions—essentially when one person’s attempt to maximize his bonus is completely unlinked to what anyone else does: door-to-door selling, for example. In all other situations, it creates unwanted side effects.
Group-based bonuses, on the other hand, can be highly effective for rewarding teamwork. U.K. retailer John Lewis (JLH) gives the same bonus to every single employee, typically 15 percent to 20 percent of their base salary. The day the bonus is announced is a day of celebration—because they are all happy for each other. At Barclays and other banks, bonuses are allocated individually, the amounts of money are huge (often many multiples of base salary), and the process is political and secretive. Everyone assumes they are getting less than the next person. Bonus season, rather than being a time to celebrate, is the most miserable and depressing part of the year.
So what can the banks do? Reduce the variable rate of pay, increase base salaries, put in place broad-based, long-term incentives, and use these levers to shift all the softer elements of culture toward collaboration, long-term thinking, and a tolerance of well-intentioned failure.
These are obvious and proven solutions, but of course, getting there from here is the challenge. Barclays itself just proposed a scheme for withholding bonuses until retirement—but unless the other banks put similar practices in place, it will just end up handicapping Barclays in the war for talent.
It would be nice to think the banks will voluntarily reform their incentive systems and cultures, but I cannot see it happening without regulatory pressure. Fasten your seat belts.
This blog first appeared in Businessweek here