Losses Covered Up to Protect Bonuses
Posted on March 24, 2008 Comments (5)
Does it surprise you to learn traders would cover up losses to protect bonuses? It shouldn’t, it happens over and over. Would it surprise you that almost any bonus (or quota) scheme increases the odds that the data will be doctored to meet the goals? It shouldn’t. Intelligent measures to make such doctoring difficult can help reduce the practice. But it is a likely risk of any such goal. As we have quoted Brian Joiner as saying: there are: “3 ways to improve the figures: distort the data, distort the system and improve the system. Improving the system is the most difficult.” So it is no shock that distorting the data is often the tacit people use (especially when the rewards are great or the punishment for missing is severe).
Of course the people that take unethical or illegal action are responsible for their actions. But managers that set up poor systems and then get poor results should not be surprised. You mainly read about the exciting distortion of data – but there is much more such distortion that doesn’t seem interesting enough for the press.
Traders at top investment bank ‘covered up losses to protect their bonuses in £1.4 bn scam’
Shares in the bank, which is based in Zurich, tumbled 7.5 per cent yesterday. Credit Suisse admitted it had discovered intentional “pricing errors” by a small number of traders involved in complex investments linked to the mortgage market.
Related: Problems with Bonuses – Be Careful What You Measure – Measuring and Managing Performance in Organizations – Another Quota Failure Example
Categories: Deming, Investing, Management, Psychology
Tags: bonus, extrinsic motivation
5 Responses to “Losses Covered Up to Protect Bonuses”
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March 26th, 2008 @ 8:57 pm
[...] the data, just don’t look at it A sad reminder of the state of affairs comes from Curious Cat Management when it comes to conflicts of interest between the data and one’s own goals. It is [...]
November 26th, 2008 @ 8:44 am
It is sad to see the same story repeated over and over. Give people the change for obscene bonuses. They make up claims that they are making lots of money to get bonuses but actually set the company to go bankrupt…
January 3rd, 2009 @ 7:55 pm
This is an interesting article discussing some of the psychological and systems thinking aspects of managing a system made up of people…
February 23rd, 2009 @ 9:45 am
[...] is because they never actually provided the value they claimed. They merely created false returns to claim they provided a benefit to justify obscene pay (many of them truly didn’t understand this is what they were doing so beyond failing they [...]
May 1st, 2009 @ 6:34 pm
The failures of the political leaders (putting their donors interests above the public interest) is something that should be investigated…