There are different ways to work compensation packages. At one extreme employees could be paid no salary and have to earn every cent via bonuses, while at the other extreme they could only be paid a salary and never receive a cent in bonuses. Each extreme is probably right for some occupations, although for most occupations the challenge is to get the mix right.

Banking–and especially state banking–strikes me as an industry that works better without much in the way of bonuses. This is because what we want in state banking is honesty, fairness, and responsibility, and these qualities are hard to measure in any way that easily justifies bonuses.

The only way to justify bonuses in state banking is either to somehow measure employees’ productivity or to rely on the subjective judgments of supervisors.

Measuring productivity can very easily amount to measuring the amount of income the employee generates for the bank. While in the private sector this kind of measurement may be appropriate, in state banking it may not be. In state banking we don’t want employees to prioritize the fat cats any more than they do the little old ladies on tiny pensions, but in fact want the reverse. Insofar as they can be justified at all, state banks exist to serve the little guy just as diligently as the fat cats.

Or, suppose productivity is measured by the number of cases or clients or whatever a banker handles. This sounds great until we remember the times that we’ve endured banking glitches and gotten the runaround trying to resolve them. If the employees receive bonuses based upon the number of cases or clients they handle, you can bet that they will target only the easy ones and ignore the difficult ones.

Meanwhile, it’s even more dangerous to award bonuses to employees based upon their supervisors’ subjective evaluations of their performance. We already know from surveys that Ticos value loyality to coworkers the workplace above their personal integrity (the opposite priorities of North Americans) and while this is nice, it is a breeding ground for corruption. The emphasis on loyality can easily extend to neglecting to report a coworker’s or supervisor’s criminal activity. If employees also needs to please supervisors in order to earn bonuses, you can be sure that very few will report crooked supervisors.

Sometimes bonuses are awarded to employees who sell the most add-on products, but do we really want a bank teller asking us if we want fries with our deposit? I think not. We want the bank tellers to do their jobs, not to give us sales pitches about products we don’t even want.

Of course, there might be some justification for bonuses in banking. An idea that comes immediately to my mind is each month to give the branch that provides the speediest customer service with a branch bonus to be divided equally among all the branch employees. I mean, what is this about taking a number and waiting forever while most teller windows aren’t even staffed? I have myself taken my number, left to go to lunch, and come back before my number was called. I suppose this is possible because the employees aren’t given bonuses for quick service but for other things.

It’s hard to pick a number, but IMO bonuses for employees in state banks ought to be limited to a maximum of 10%. If the private banks want to operate differently, that’s their business. However, the mission of a state bank is different from a private bank. It is to serve the little guy as well as the fat cats, and to have rock solid integrity. Bonuses would seem to operate a cross purposes from these objectives.