Bonuses are part of the corrosive ‘target culture’ – yes, tax them at 90%

Bonus!Escribe David Boyle in–A year or so ago I was at rather an exclusive policy meeting in Westminster when I suggested that banking bonuses ought to be taxed at 90%. A horrified silence descended on the room full of MPs and wonks, before most of the senior people in the room rushed to disassociate themselves from any such idea. There I was, trapped in an HM Bateman cartoon: "The man who said bonuses should be taxed at 90%."

So I was fascinated to learn that a conservative figure such as Simon Jenkins, chairman of the National Trust and former editor of the Times, has urged Treasury ministers to stop public sector bonuses and, yes, tax private sector ones at 90%. Jenkins is right not just about banking bonuses, but also about bonuses more generally. He is right not just because they are a waste of shareholders’ and taxpayers’ money (though they are), nor because they unfairly privilege the richest (though they certainly do), but because they are actually glorified targets. They have exactly the same perverse effect on companies and organisations that they do on public services.

But let’s be precise about how they subvert the way managers behave. Just like targets, bonuses persuade them to focus on reaching simplified numerical targets which can’t possibly sum up the complexity of the broad objectives we want them to strive for. They are also easy to "game". If the NHS got round the four-hour target for patients waiting on trolleys by buying mobile beds, bankers reach their numbers by blinding themselves to the importance of anything else. Like targets, bonuses narrow complex objectives down to impoverished output figures. They sacrifice broad improvement for narrow outputs. You might as well replace highly paid human beings with extremely expensive machines. They also fall seriously foul of Goodhart’s Law (when numbers are used for control purposes those figures will always be inaccurate).

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