It’s time for executive bonuses.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
In my last article on UK lender TSB’s escalating IT nightmare, posted last Saturday, I signed off with a sarcastic remark about how, in the absolute worst case scenario, TSB’s senior executives may even lose their bonuses. It was meant as a joke. Surely TSB’s management would realize that awarding themselves massive bonuses as the chaos and financial pain caused to customers by their own botched IT upgrade continues to mushroom would be an unmitigated PR disaster. Wouldn’t they?
During questioning on Wednesday TSB’s chairman Richard Meddings did tell UK’s Members of Parliament that TSB’s CEO, Paul Pester, would be missing out on a £2 million bonus related to the IT project, which had been deferred last year. But that was in reference only to bonuses directly tied to the IT project. He did not rule out more general performance bonuses for the bank’s leadership.
On Friday the Financial Times reported that a union representing thousands of TSB employees has threatened legal action against the bank if it pays out bonuses to executives this year. Mark Brown, general secretary of the union, TBU, wrote in a letter to the chair of TSB’s remuneration committee that “given the current shambles, neither Mr Pester nor any member of the bank’s executive committee should get any performance bonuses whatsoever for 2018.”
The letter, dated May 3, includes what sounds a lot like an ultimatum: “If the remuneration committee pay any performance bonuses to any member of the bank’s executive committee then, as a shareholder, the union will take legal action and your justifications for making such awards in the face of this botched IT migration will be subject to the scrutiny of the court.”
That the union, which represents some 4,000 TSB employees, is issuing a threat as stark as this would suggest that many branch and other front-line workers, many of whom have had to bear the brunt of customer ire over the past two weeks, are close to the end of their tether. They also appear to have reason to suspect that executive staff still intend to award themselves bonuses, despite the fact that:
- Pre-tax profits at the bank fell 39% in the first quarter of 2018. In other words, even before the IT problems began, the bank was hardly performing at its best.
- Now, TSB faces its worst crisis since former parent company Lloyds Banking Group requested a bailout in 2009. In large part the current problems are due to management’s own incompetence, including its reckless determination, largely at the behest of senior mangers at TSB’s new parent company, Banco Sabadell, to complete a highly risky project as quickly as possible.
Management at both TSB and the new parent company Banco Sabadell have denied charges that the data migration was rushed. But as we revealed last week, an insider at the bank has alleged that the disastrous roll-out of Sabadell’s Proteo4UK system at TSB was foreseeable a long time ago, at least to many of the tech workers involved in the project, and yet the management went ahead anyway, adopting a hope-and-pray attitude.
The TBU appears to confirm the insider’s claims. In a letter to the remuneration committee sent in February, the union pointed out that tests had shown “the system was not stable enough for customer rollout.” The TBU said this week that: “if you had taken due notice of our concerns … which were coming directly from members working on the project and involved in the testing, TSB’s IT fiasco could have been avoided.”
That fiasco, now on its 16th day, shows no sign of letting up. Thousands of customers are still locked out of their online accounts. Countless standing orders, payrolls, mortgage installments and other payments and transfers have failed. There are still signs that some data have been lost or corrupted. By Wednesday the bank had received 40,000 customer complaints.
It’s far from clear how long it will take before the system is fully operational, if indeed it ever will be. Miquel Montes, Banco Sabadell’s managing director, told MPs that it should be up in a matter of days. But his was a lone voice of mindless optimism. According to The Times, a team from the Financial Conduct Authority has established a temporary operation base in TSB’s head office to monitor the bank’s efforts to restore its systems. One source told the newspaper that officials were working on the assumption that fully fixing the problems could take several months.
“The fact you can see other people’s accounts suggests this is way beyond a capacity issue. I think this is genuinely catastrophic for TSB,” said the expert, who works for a UK bank and asked not to be named.
If he is right, TSB and Sabadell will need to launch the mother of all charm offensives just to prevent a mass exodus of customers to other banks. To do that, they will need the bank’s overworked, over-stressed, under-appreciated front-line staff fully on board for the entire duration. And the best way of ensuring that doesn’t happen would be to award themselves handsome bonuses for work they haven’t done.
That’s what senior bankers do all the time these days. As the British journalist Peter Oborne laments, “over the past 30 years all the bank managers who put customers first have retired or been sacked. They’ve been replaced by sharp-suited, amoral cheapskates who are paid outrageous sums to rip us off.”
Bonuses on Wall Street are now back to pre-crisis levels while in the City of London they jumped 10% last year. Even at Deutsche Bank, which just posted its third annual loss in a row bonuses have quadrupled. As such, it would be entirely in keeping with industry practice if TSB executives were given wholly undeserved bonuses. But if that happens, the next big problem TSB faces could be internal revolt, at the worst imaginable time. Just as with the IT crisis, it would be entirely self-inflicted. By Don Quijones.
“This turned what was a super-hard systems job [into] a clusterfuck in the making.” Read… UK Bank’s IT Disaster Enters 2nd Week, Contagion Fears Rise
Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.