Ottar Palsson, CEO of failed Straumur Investment Bank has written a formal apology letter, published in Frettabladid today.

Ottar leads a group of Straumur top management who asked for billions of ISK in bonuses for maximising profits in the impending sale of Straumur’s assets.

“In the light of the discussion from the last few days, I am left in no doubt that myself and others working on the reorganization of Straumur should have paid better attention to the situation in the country. I also think it is important that it is known that I have never intended to participate in the asset management of Straumur once the reorganization is complete, and therefore I have no personal interest related to the payment system of that operation. As the CEO of the company, I am responsible for what happens there and I apologize, on the behalf of myself and the company, for the intended system considering only foreign situations and not being in touch with the reality that us Icelanders face as a nation.”

A day after former Kaupthing CEO,  Hreidar Mar Sigurdsson appeared on the Kastljos talk show, pointing fingers in other directions and denying any blame, such a letter is a welcome novelty in Icelandic commerce. Curiously though, Frettabladid’s editor Jon Kaldal touches on the bonus system in his editorial today and asserts that such systems are not bad in themselves. It is important for the state to maximize the price received for the assets and therefore competent people must be paid and rewarded accordingly.

The obsession with bonuses has been disturbing to me for a few years now. I think bonuses is a great way to reward people for doing their job well. Unfortunately that has nothing to do with the bonus systems of Icelandic companies through the last decade.

At Kaupthing, there were different layers of operation and some seemed to be fit to receive massive bonuses while other weren’t. In my personal opinion it had nothing to do with the job being done but more to do with who’d done the job. The trouble with bonuses is that top management can dole them out like candy and decide who gets to participate in the feast or not, especially when there is no transparency to the system. Also, benchmark numbers can be manipulated. A result from this database might tell a different story from another database and an independent survey might tell yet another. This was quite common within the banks, to use the numbers that fitted the means.

Front-line employees were encouraged to sell products. Bank tellers and service staff in the branches receive salary that is insulting, especially in the context of top management’s wages. A teller’s salary during the good times would be between 130-150.000 ISK per month, just over unemployment benefits. They could earn more though through sales of the bank’s products, which yes, delivered sales results but at the cost of harmony in the workplace and high turnover in employees. While top sales management loved pitching the staff against each other, eventually in most places the staff itself agreed on working together and sharing the benefits. Which is what any decent bonus system ends up doing eventually.

And that is the key to any successful bonus system, and an important thing to remember when building future societies. Straumur’s management for example wanted those billions for themselves, neglecting all the other employees toiling away below their ranks. As any participant in team sports will tell you, and any business with more than one employee needs to consider itself a team, success comes through co-operation. Just ask Michael Jordan how he did with the Bulls when they were a one-man team.

Ottar Palsson’s apology is therefore accepted on the terms that he and other Icelandic business leaders start working for the benefit of the whole, instead of their own. Otherwise it is absolutely useless and things will not change.

PS: My favorite story of a bonus fiasco goes like this. Every year around the publishing of the annual reports, every member of the banks’ staff who wasn’t on a top-bonus scheme received a bonus according to profit. This would be somewhere between 200.000-300.000 ISK in the good times, an amount that mattered to bank tellers, service staff and lower management, usually paid out as extra salary, i.e. cash in hand. Then one year, Kaupthing proudly announced that half the bonus would be paid into a pension fund that invested in Kaupthing’s stock, a great gesture from the bank towards your future. That didn’t go down well, especially with reports of the CEO’s large lifestyle appearing in the media regularly and didn’t happen again. Many were left with an awkward feeling though, and possibly this was an early signal that all was not well since the bank wanted to keep this money within. Last autumn, I had a half-decent sum in that pension fund as a part of my savings. It is worth about as much as a Snickers and a glass of milk today.

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1. “Why Should These People Be Paid Bonuses?”
2. Bankers Bonuses And Perspectives
3. Bank Corruption As Bad As It Gets
4. Lets call Siggi
5. Good News And Bad News