Morning Coffee: These are the worst teams to be on if you want to be promoted at Citigroup. Star fund manager is in tears at the unfairness of it all.

The annual review season at a big bank is a strange phenomenon – it isn’t quite the same thing as the bonus round, but nor is it completely separate.  Although the biggest driver of compensation is always your market value, in the sense of what your boss thinks you might be offered elsewhere, it’s often difficult to get the really big payouts if you’re not scoring well.  And if you are trying to get promoted to Director or Managing Director, you really need to be lighting up those “Exceptional” or “Significantly Exceeds Expectations” rankings to fill out your promotion case.

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Which is one of the reasons that Citi’s assessment process is, according to lots of insiders who didn’t want to be named, extremely unpopular with the employees who are subjected to it.  The way the system works is based on a modified version of the old-fashioned “stack ranking” method, made famous by General Electric’s Jack Welch.  Although the company’s HR team emphasises that “We have guidelines associated with ratings, which is different from a forced curve”, the fact is that everyone has to be put into one of four brackets, and managers are instructed that only 10-15% of their reports can be “exemplary” and a further 15-30% can be “exceeds expectations”.

This means that it can be a tough life being on a high-performing small team at Citi. If there are only a few of you, then even if you’re doing a great job, half the team are going to be “valued contributors”, which is the definition of being damned with faint praise.  And someone might be ranked “needs improvement” simply because everyone else on the team is better than them, even though they don’t really need any improvement.

There is some scope for deviating from the guidelines for managers with only three or four people to assess, to make sure that the arithmetic effects are not too egregious.  And there is apparently quite a bit of horse trading between teams at “calibration” meetings with top managers of the business unit and HR.  Things are also potentially made a little less Darwinian by the fact that Citi gives separate ratings for “what” you achieve and “how” you went about it.  But even this is apparently rather fraught; for employees who don’t have a direct P&L attached to them, “what” is almost completely a matter of subjective assessment.

So the worst position to be in seems to be the third or fourth best banker on a team of five or six, with a boss who isn’t good at internal politics, in the year that you’re trying to build a promotion case.  For everyone else, it’s just a bit of avoidable bad feeling during the season of goodwill to all. 

And it’s not even as if Citi’s system is so much worse than everywhere else on the Street. It is surprising, to say the least, that an extremely competitive industry which is so reliant on human capital spends so much time and effort on a process that takes up so much management time, doesn’t make anyone happy and has surprisingly little effect on compensation. Somebody, somewhere, must just really like ranking people.

Elsewhere, as the saying goes, “tell me more about this ‘not our fault’ theory, I find it strangely compelling”.  Five years after Woodford Investment Management turned into a smoking hole where a lot of investors’ money used to be, the former “Oracle of Oxford” has made a video entitled “The Darkest Five Years Of My Life”.  Which they probably were, although this is mainly because his life up until then had been really quite sweet, and his fund management company managed to pay out quite a few million pounds of dividends before it all fell apart.

Woodford’s argument is basically that the fund administrators made some really bad decisions, didn’t tell him what the rules were and forced the liquidation of the fund when it could have survived.  Which might or might not be true, but is basically irrelevant.  The most important thing to understand about a trading book or portfolio is that risk management is primarily the responsibility of the person making the trades.  If you ever get into a situation in which other people are making the decisions, then a) they will make them badly, because they are going to look after their own perception of their own interests.  And b) this will nonetheless be your fault, because making sure that doesn’t get anywhere close to happening is the essence of the job. 

Meanwhile …

For a masterclass in the “mistakes were made, but not by me” interview style, check out Lars Windhorst in the FT’s latest short film about “scandal, spies and the superyacht”. (FT)

Andrea Orcel’s latest move in the Commerzbank takeover battle has been described as “uncoordinated and unfriendly” by the German government.  He has responded by noting that there’s going to be an election in February, so he’s happy to wait for a second opinion. Rothschild (the government’s recently retained advisors) are presumably going to be earning their money in the background. (Bloomberg)

European and Asian offices of US banks will be buzzing with the news that there’s a proposal in Congress to reform the tax system so that expats overseas don’t have to pay US tax on their global earnings. (WSJ)

Boaz Weinstein is back causing trouble for UK fund managers, with an activist attack on underperforming investment trusts. (Fortune)

Joe Biden criticises some of the most talented investors in the world for the alpha they generate.  Which is to say, the stock trading returns of American elected representatives, in companies affected by legislation, have been a long term embarrassment for Congress, and he’s finally suggested there should be tighter regulation. (NY Post)

“If you did this well in a job you hated, imagine what you could achieve doing something you care about!”.  A former JP Morgan banker is now a singer-songwriter and director of a music festival. (Globe and Mail)

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