Does forgoing bonuses really serve taxpayers' interests?

I can't help thinking that the furore over the bonus awarded to Stephen Hester, Royal Bank of Scotland chief executive, rather misses the point. Bowing to mounting pressure from many sectors of society, he finally agreed on Sunday night that he would not pick up the almost £1m of shares to which his contract entitled him. His chairman, Sir Philip Hampton, had previously waived his own bonus, no doubt adding to the pressure on Mr Hester.

It's clear that the bonus culture in the banking sector has spiralled out of control, leading to remuneration schemes that are ludicrously high. But that is the state of the industry, and one token gesture won't change it. Singling out RBS as an institution largely under state ownership only risks damaging its ability to compete for the brightest and best business brains to steer it back to prosperity and repay the investment UK taxpayers made to bail it out.

Mr Hester's bonus - like Sir Philip's - is payable in shares, whose value will be directly affected by the way  they manage the business. With the bonus in place, top executives would benefit directly and personally from rebuilding the share price so that the return to taxpayers is maximised. How then are the taxpayers served by declining the bonus? And if he's tempted away by the riches offered by non-government backed institutions, how will RBS attract a talented replacement?

Such ad hoc measures won't achieve the fundamental change required to rebalance the way we reward our bankers and they could seriously endanger the recovery of RBS.

Why Wasteful Design still Dominates, Despite Alternatives

Of all the innovations of the computer age, the laser printer is probably the most inherently wasteful. This ubiquitous device is the product of a business model that seeks to maximise long-term revenue from the sale of premium priced consumables – often referred to as a “razor and blade” model.

It doesn’t have to be this way. There’s no technological reason for all that is mechanically clever about the device to be contained in a disposable cartridge; it’s a commercially-driven decision. But the need to justify the price premium charged for the cartridges has resulted in a complex product design that builds in redundancy.

A cartridge refurbishment industry has grown up to take advantage of the residual value in used toner cartridges, but it admits to only being able to return to the market 20-30% of the cartridges sold each year. And cartridges can’t be refurbished indefinitely: their components are not designed for extended use so print quality and reliability can be compromised. In the UK alone, it’s estimated that 47 million laser cartridges go to landfill every year, taking many thousands of tonnes of plastics and metals out of the economy.

As far back as 1992, Kyocera developed a very different proposition: long-life components that would last for 300,000 pages, resulting in a printer that was effectively cartridge-free. Not surprisingly, this resource-efficient approach also resulted in significantly lower running costs, too. In a world increasingly sensitised to resource scarcity, you might have expected this to become the dominant technology. But more than 90% of laser printers are still cartridge-based.

Kyocera has to work hard to erode the market domination of the conventional printer vendors for a number of reasons. The disappointing fact is, that for all the rhetoric about best value and sustainable procurement, most buying decisions – especially in public sector – are still determined by the initial price. Green credentials and low cost of ownership will get you on the shortlist, but the final decision usually comes down to who is prepared to discount the upfront cost by the largest percentage – and, in the printer industry, that favours the conventional vendors who know they can make up any loss on the hardware through a lifetime of revenue from cartridges.

This approach makes it difficult to gain acceptance for a more resource-efficient solution that might cost a little more up front, but will more than compensate in terms of reduced operating costs. And the challenge is further compounded by the division of budget responsibility in most organisations; different people hold responsibility for hardware, consumables and energy, so the full use-phase costs are rarely fully understood, let alone emissions, waste or resource efficiency.

And finally, the product-centric procurement approach taken by most large organisations, especially in the public sector, makes it difficult to propose innovative service-based solutions. If a vendor receives a tender for 500 devices of a certain size and speed then they have to respond on that basis, even if they know that by supplying a managed print services instead of just shipping hardware they could deliver a solution that would not only be more resource efficient but also cost less over the life of the contract. And given the scale of the current economic challenge, that’s doubly frustrating.

What I’d like to see is whole life costing – including both direct and indirect operating costs – applied to procurement decisions in place of the ticket price, and tenders written on the basis of the desired outcome – in cost saving or waste reduction – rather than around a product specification. This would encourage more vendors to innovate for resource-efficiency throughout the entire product lifecycle and reward those whose products and services achieve the greatest improvements in resource efficiency.

This post first appeared on The Green Alliance's Green Living blog