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After the fury, the recriminations. Blaming bonuses for the trauma of the past 13 months is nothing new, but the finger pointing is reaching new levels of vigour.
Gordon Brown and Alistair Darling have let it be known that they will regale the Labour Party Conference with speeches calling for more regulation of the financial system and for “tighter control of irresponsible City bonuses”.
Labour deputy leader Harriet Harman has set the pace. Last week she described bonuses as outrageous, blamed them for “mad house prices” in London (which may not be unreasonable given that Savills estimates that 5.5bn of last year’s estimated 8.5bn bonus pot went into the capital’s housing market) and said they were structured so as to encourage traders to take “unwarranted risks”.
Not to be outdone, the FSA is apparently said to be planning spot checks on banks’ risk systems. The penalty for non-conformity? Revision of the way rewards are calculated.
But before dumping bonuses into the dustbin of history, it’s worth considering whether doing away with them would really make a difference. Most models of bonus reform look at deferring bonuses over time and aligning them with the risks inherent in their achievement.
Arguably, this is precisely what both Lehman and Bear Stearns were up to – both paid a high proportion of bonuses in deferred stock, meaning bonuses were aligned to the wellbeing of the firms as a whole. And employees at both saw the value of the last few years’ bonuses wiped out as the stock plummeted.
Bonuses have also done some good. 8.5bn pumped into the Exchequer and the economy is no bad thing. Without it, charities are already said to be bracing themselves for a lack of cash.
Does someone need to stand up for bonuses? Or is Gordon Brown right to bash them into oblivion. We invite you to comment below.
Without bonuses you would not have had the incredible success of the banking sector over the previous decade, nor the renewed vibrancy of the City of London, nor high levels of UK GDP growth. Shooting them down is sheer populist nonsense.
Banks that made ‘incredible success of the banking sector’ are no more. Their ‘success’ was fake. Did you watch the news or read newspapers over the last several weeks?
I don’t think anyone has the energy to stick up for bonuses now. We’re also too busy clinging on to our jobs.
if the demand is there for talent, then “bonuses” will be paid through higher wages, stock options and other perks..the government may have the power to limit straight cash bonuses, but economic forces will manifest itself in the end..another case browns inability to grasp simple economics and playing to the media..i’m voting conservatives
the simple fact of the matter is all those people earning under 40k living outside of London love nothing more then to complain about bankers being overpaid.
They cant get their heads around not working 9 – 5 with a 1 hour lunch break. Overtime / time in lieu and never working a weekend.
what it really comes down to is who’s to blame for the credit crunch. wealthy bankers who received big bonuses are the obvious target. but Joe public with his mortage six times the size of his income and taste for flat screen TVs on credit must also share some of the blame.
Well said Roger….. It has been grab, grab, grab for years. Banks have made the economy in recent years, paid for those flat screen and bmw’s on every estate in the land.
The amount of income tax and corporation tax paid over the last decade by the City should make Darling stop and think. It is unwise to bite the hand that feeds you.
The imbeciles in Government forget that a great number of City employees are highly educated, talented professionals who are also highly mobile (particularly those without children). If bonus remuneration is restricted, I will take my talents and tax payments elsewhere. (15% top rate tax in Hong Kong).
Labour has screwed up the UK royally. Whilst the sub prime problems from the USA housing market can be blamed on the banks, the gov is blatantly trying to make a case for taxing city workers. The funny thing is, there is nothing else here in the UK – no manufacturing – no natural resources, no significant agriculture – just world class financial services. Cock up the bonuses and that will be gone too. and then no satellite dishes for the scroungers, money to pay nurses etc etc. I think we should all quit our jobs let the city melt down and demand free houses, free money and satellite dishes too…….the uk sucks
From the Guardian comments section – if bankers have no incentive to perform other than through the aquisition of large bungs, what differentiates them from any other employee? Should we expect our surgeons to botch operations for lack of a cash bonus? Do we need to provide the police with commissions for every arrest – a situation that we do much for conviction rates but little for the cause of social justice? In short, it is assumed that most workers are expected to perform their duty without constant and, in this case, outlandish incentives.
Sid, I disagree.
First, you have fallen victim to the media’s representation that everyone who works in the City receives an ‘outlandish’ bonus. This is totally incorrect. The top people do, that’s it.
Second, I have a choice where I pay tax and a rational and mobile decision maker will choose the juristiction which generates the highest return for his or her efforts. Sorry – that is just the way it is.
I agree with your point on surgeons – they too are highly mobile resources in great demand and should quit this soon to be economic wasteland for a place where they are respected and properly rumunerated.
As far as your example of the police goes, unfortunately, they are not in high demand internationally because despite the good work they do, essentially they are not highly skilled workers and their job requires intimate knowledge of the law, geography, sociology and political landscape of the country in which they serve. They are somewhat tied to the UK.
Soon when I and others like me decide to leave, there won’t be enough tax to pay for the police, nurses, surgeons and other essential workers so they may be forced to quit this godforsaken labour mess too.
Bonuses should be modest and not astronomical. Many of the banks were bonus-driven. Banking staff became celebs and were featured in tabloids for the first time. TV docs were made showing traders spending thousands of pounds in just one night on partying in clubs.
We have a culture of envy here in the UK, hence the glee with wich people comment on the demise of Lehmans…et al.
Bonuses were once referred to a performance related pay and should continue to be paid – for good performance
Why can’t the bonus pot be shared more evenly? I disagree with those who think that their bonus has paid for all of the services in this country – their contribution may help, but it’s not the whole picture, and wouldn’t it be better if that money was shared amongst more people? Why do just a few need to pocket the bulk of the cash? Wouldn’t the economy benefit just as much if it were spread amongst a larger number of workers? That way you wouldn’t have to harp on about working such long hours, and weekends, too!
Tongxin – you miss the point of a bonus – it’s a payment for performance. What’s the point in sharing a bonus with a load of mediocrities whose contribution has been negligible at least.
to Mike – it is 13% in Russia…
Forget about the political leaders and the media. The fact is that market participants themselves were heading for a review of the bonus system anyway – be it deferred stocks, deferred cash payout. Given what has happened, no employer will be paying upfront for operations which are not closed. What I mean is that the method of marking a trader’s book to show a definitive profit years before an operation is matured, this method is over. Like it or not. Take any shopkeeper on the high street. As long as he’s warehousing items in his shop, he’s not making a profit. Whichever level he’s valuing his stock at. Banks should act identically. They buy debt paper, ABS, CDO, you name it… As long as the debt hasn’t matured, as long as they haven’t sold it back or as long as they hold it on their books, there’s no real profit, only fictive profit based on assumptions /models. So no profit, no bonus.
This being said, you have to distinguish between bonuses. For example, a broker who’s taking fees on each transaction, that’s tangible profit. He’s not holding anything on a book. An M&A banker who’s making Xmillion fee on a merger advise, that’s profit. Net. Not fictive.
This is all big BS. I doubt how many of those who say that the bonus should be spread equally are even capable of doing the jobs of the big players. The big bonus earners work hard, took risks for their bonusses. The top performers have to make the money, and in case the system favours the imbecile, the system will stop.
Further, a Quick Check people– half of the earners are now out of jobs !! and are not going to earn anything for the next couple of years. Hence, if you average it out, it is not so much out of whack.
Such irony! The UK government has been directly responsible for the huge City bonuses that they whinge about.
For years, the UK government over-liberalized markets and the regulators under-regulated. This enabled bankers to over-borrow, over-lend and over-speculate; leading to huge short-term bonuses for unsustainable faux-profits that ultimately drove many firms to collapse. It is a sorry mess that the UK (and US) government(s) directly caused.
People with large banking bonuses often need them to compensate for the lower life quality that goes with working ridiculous hours, having a lower life expectancy, being on call 24hours even during vacations, having less job security, missing childrens birthday parties etc etc. Not everyone deserves them but many of them are well deserved. Please stop this typical british jealousy – if you want one of the bonuses why not retrain and put in the hours – by the time you have, the market maybe on the up again.
The people complaining would be saying something allot different if they had been receiving huge bonuses themselfs……… Capitalism, free market system! Everyone looking to profit for them self’s! Its the way the cookie crumbles…………….
To the shameless supporters of free-wheeling capitalism who obviously don’t realise that 10 years of investment banking hubris has led the country (the UK, which GDP is 50% reliant upon the financial industry) to the current chaotic situation, perhaps I should suggest that investment bankers take a step further in the implementation of the free market theory and actually get NEGATIVE bonuses when their performances are negative, I think that would teach a lesson to the arrogant thieves that play with the real economy’s money, fill their pockets to the top as long as they can and then whine when the party’s over. Privatise profits, mutualise losses! Rats…
The bottom line is that the people receiving large bonuses are not solely responsible for the ‘chaotic’ times at present and to refer to bankers as arrogant thieves’ is ridiculous……if they take risks and profit from it, why should they not be entitled to their share? If they contribute the profits of the company, why should they not be entitled to a bonus?
I like bonus day, i enjoy good food wine and dating with good impression with the ladies at big shiny restaurants in city. Smart suits and shiny new Churchs make good impression with family and girls. Bonus living very nice – now not so fun with basic pay and big tax. Have to move to smaller flat in West Hampstead with different type of people.
I miss my bonus day, times are very hard and sad. Nobody is happy in Wharf and people always shouting at bankers.
As a flexible expat who has enjoyed his time in this great city of London, I will look to pack my bags and move on. I wont be paying 42% of my salary to the government anymore, or 19% vat tax on everything i buy. I wont be spending a 1000 a month on restaurants, 700 on flights with BA, 2200 a month on rent, 200 on beer or 400 at M&S. Nor 120 on council tax. My personal trainer wont get his 50 an hour, my gym 100 gbp a month, the BBC my 12 TV licence tax or the local lunchtime sandwich shop my 10 a day. If the Labor Government wants to regulate the financial industry out of existance to appease their money men the trade unionist ,and the rest of the left wing losers, if they think i don’t deserve my bonus then this economy doesn’t deserve my money. I look forward to the day when politicans salaries are put under the same scrutiny. Adios
Bye Scott – and thanks for all the fish!
Allison – couldn’t agree more. What’s immoral about receiving a bonus for money that you have MADE (and received by) your employer?? Are we going to penalise entrepreneurs next?
Is anyone complaining about the 100k I paid in income tax last year?
Personally, I would love to see what the value of MPs and other public sector workers’ final salary pension schemes are worth – to me, those are the outrageous bonuses we should be complaining about, and a far greater threat to the economy.
It’s immoral when the profit is made from economically irresponsible behaviour for which everyone now has to pick up the pieces.
Ah, that’s irritating…will you please stop boasting about the bucks you’ve made? What have you done at all by the way? What is your contribution to society, humanity? As a a former brainwashed investment banker, I can say I’m very glad this crisis has given me the opportunity to look around me and to actually start doing something useful and interesting. And the bonuses? That’s just obscene. You’re argument on the impact of lower or no bonuses on the whole UK economy is correct, but it’s only a proof that the economy itself was artificially inflated by high salaries in the financial services industry. We’ve all had a good laugh, now what about waking up and starting to build something real, useful and durable? An economy, yes.
P.S.: why that hatred against civil servants?
No, entrepreneurs will not be taxed next and please stop comparing yourselves with them. It’s pathetic.
Entrepreneurs have an idea, invest their own money and then profit over long term. They don’t benefit from short-term risk taking that result in losses.
The City will survive a few expats going back home. It did without them for hundreds of years.
Why should I suffer just because some idiot didnt want to turn up to Maths lessons as a 15 year old to figure out what they could and couldnt afford.
‘Why should I suffer just because some idiot didnt want to turn up to Maths lessons as a 15 year old to figure out what they could and couldnt afford.’
erm, because you expected that ‘idiot’ to pay back the loan?
The problem is the bonuses being paid are not being paid for good work, productive work or even profitable work. Look at the mess you have gotten the economy into and you expect people to be grateful for that.?
The City are not the wealth creators, people are wealth creators. People up and down the country working hard; entrepeneurs, small businessmen, people who work in factories, shops, offices. The tens of millions of people working hard for less money than they deserve. Your pathetic threats to leave the country show you for the people you are. Greedy people driven solely by money. If you want to leave, good riddance, perhaps our economy won’t be as perversely focussed on keeping The City happy.
In the mean time back on earth where humans live we will remain in this country with our family and friends and do some real work
I work for a retained search firm, our clients are CEOs of large hedge funds&Global Heads of Trading at investment banks.
The a large portion of the individuals who work in derivatives trading, quantitative research, and portfolio management form a large part of the worlds intellectual elite, and are not just skilled, but obscenely talented.
PhDs in Mathematics and Physics from Oxford, Cambridge, Harvard or MIT, are not just common, but “minimum requirement for entry”.
And these individuals do not just work hard, slavelike devotion to the firm is also a minimum requirement. I don’t care if a few teachers or builders think that they work hard if they do 10 hour days. I know one head of trading who has not left his office for 5 days, since the markets are so nuts, he is sleeping on the sofa in his office.
The successful people in this business are not only amongst the most elite brains on the planet, but more often than not they live to work, and apply mind, body and soul to their jobs. You could make bonusses more “even” so less talented people take more, more talented people take less. But even is not fair in this case.
J – sounds like you’re suffering from a serious case of sycophancy. May I suggest you find something a little more worthy to idolize.
K – I think you’ll find the word is admiration. I earn as much or more than some of the traders that I work with, am a millionaire (in dollars :-D ) at the age of 23, and have no reason to be sycophantic.
My brothers are both cambridge mathematics graduates, however I’ve considerably surpassed what they make in investment banks, despite being 10 years younger and choosing to start working in retained search when I was 19, without going to university.
I still admire the individuals who are at the forefront of business leadership and are exceptionally talented.
Would it be preferable if I was jealous?
The likes of Smith, Ricardo, Marx and almost all other economic thinkers conclude that bankers are similar to parasites adding little if anything to the ‘productive capacity ‘of the nation. Having been a banker for many years i have to say that although we may kid ourselves that we have come up with some new idea that justifies our existence the truth is that we have never been able to turn lead into gold. If i am honest i have to say the sum total of what i have seen in banking has done nothing in ‘real’ terms. We really can not justify bonuses now and it really is a pity for us all that we as a world had decided to allow ourselves to become so dependent on a financial sector for our growth and productivity. The adjustment to a ‘real’ economy will be all the more painful given how dependent the global economy has become on a business that ultimately only pushes money around and does not create anything that adds to the productive capacity of the nation.
It is sad for us that we did not reward scientists for social advances but instead for a ‘punt’ with other peoples money in a one way market. The market has turned and i doubt even those best minds can make gold from lead now
For all of you against “big bonuses”, do you have an idea how tough, physically and intellectually demanding, stressfull and sometimes painful is to work on the trading floor of a so-called bulge bracket bank? How many sleepless nights these people have? It’s not a walk in the park, i can assure you. And we are definitely the category most at risk when you consider job security. Yes, bonuses in the last few years have been great, but they are not the cause of the mess we are in at the moment? I would like to remind you that interest rates in the US were as low as 1%, so while we took the opportunity to “exploit” the environment to find new ways to make money (and we will always do) i don’t think reward systems in the financial services industry are the only thing to blame here. If i manage to generate 20 bucks of profit for my firm then yes, i want to be paid $2m myself, or i’ll go sailing around the world spending little and paying no taxes, worrying only about tides and storms!
genuine question, if people want bonuses to be capped at a ‘reasonable’ level. Where do they think that money will go
I’m fed up with all the whining from politicians and lay members of the envy-ridden public. I didn’t hear them complaining during the 10 years of economic boom, powered by the City, that in large part helps pay for their school, hospitals and “freebie” hand-outs! Boris Johnson is right – don’t kill the Goose that lays the Golden Egg!!
I am not against big bonuses, they are part of the system we have created. However the system we have created doesn’t really produce anything real and productive? Traders, bankers do work exceptionally hard and work under great stress and are rewarded for it. But even the best paid in the city do voice doubts over whether they actually create anything thats why so many go on to become teachers or plumbers ar do charity work – maybe to make a real difference.
It is not he fault of bankers – we just followed the path society set down for us and work hard and play by the rules. Agreed there is a question over anything is really created but dont blame the bankers, everyone has accepted this sytem globally – and nobody cried for the last 10 years when times were great.
And a lsat observation, i know Lehman guys who have already been given 2 year lock in cash bonuses by BarCap and Nomura – this is a sytem that exists it is the way it is and everyone should just stop booting the banking system and ask if we all are happy with the banking system and whether the problems were created by global banks keeping rates as low as .5%!
Truth is, despite the self-aggrandising of Mike and others, a lot of people working in banks are at best mediocre talents. Maybe they won’t be the guys getting mega bonuses, but they have still done very well by almost any other yardstick. These guys have been lucky (and hard working for sure) and the luck just ran out…
…and before anyone accuses me of being some envious prole, I have worked in a bank.
I agree with the comments here, banking is the only real industry left that is driving GDP in the UK. Joe public was very happy when times were good. They could borrow as much as they wanted for anything they wanted (those lovely flat screen tv’s and BMWs mentioned) and now that they can’t: lets blame the bankers!? Take some responsibility for own actions! Bankers (i am not a banker) are highly educated proffesional people who we should all aspire to be like (without the crazy hours though), if they all leave the UK then what are left with?!
…banking is the only real industry left that is driving GDP in the UK. ..
really? funny that, because finance accounts for only about 10% of uk exports. i-bankers aren’t as important to the economy as they think they are.
Andrew, what state do you think the economy will be in if the bankers left? Do you know how many people and other companies (small and big) rely on them? I’m not talking about the estate agents who made millions from bankers buying up half of London either! I’m talking about the cleaners, bars, restaurants, couriers, engineers, the thousands of non-bankers who work for banks all over the UK, etc!
Everyone seems to be forgetting that it was governments who kept interest rates so low (for years), and you make money cheap and easy to get then people will take it. It was the likes of the Clinton administration that wanted everyone to live the American dream of home ownership. Everyone felt richer and thought they would get even richer!
what peopel are really p*ssed off about, id that its Mr Mediocre who suffers with the tax burden while these traders with their short term false profits muck up OUR long term pension schemes, savings and hard earned tax money and then run off.
And then they justify it by saying we borrowed too much in a market that they exploited with false profits. Bonuses are fine when your Bill gates, no one denies him his money. But they woudl if we picked up the tab for losses he caused. That’s the difference.
When I was a trader at UBS I didn’t make obscenely large bonses, i.e. I’m not a millionaire. Secondly it’s many contributing factors that created the storm we find ourselves, including the federal reserve lowering interests rates, the demutualisation of building societies that used UK people’s money to buy foreign debts, not regulating borrowing, which allowed any idiot the use of a credit card, and not regulating the privatised energy companies.
However, upon saying that it’s true that some bankers are rewarded obscenely large bonuses. To begin with I never questioned it; however, a few years back I did consider it exploitation of a system that didn’t produce anything.
What all these silly banks and banker need to understand, just as I did (before I switched to medicine) is that – when you work on long-term investments you ought to be paid for long-term gain, i.e. why pay a builder a huge amount of money when he’s only built the walls and not the foundation of the house. Same way- the dude playing tricks with my pension money ought not to be
As for the banking industry contributing the most to the treasury- that’s shameless cr*ap considering many of these large industry’
As for the banking industry contributing the most to the treasury- that’s shameless rot considering many of these large institutions have international tax treaties, not to mention foreign registered addresses, so the UK doesn’t receive the full whack, so to speak. Also, if you look at charts, much of tax money comes from indirect taxing, i.e. VAT, so Mr Mediocre on a salary below 40 or on benefits does contribute towards the GDP of this country.
Greed breeds destruction. Newton’s third law of physics- for every action there is an equal and opposite reaction. The economy had this coming.
What is gone is gone. Maybe we can move on to what the UK can concentrate on to build real value into the economy etc. or at least speculate on what the next bubble is so we can all jump on it.
Who is talking about Man, Arsenal or Chelsea star football players, they receive huge pay too including their bonuses as performance related pay. And everybody find that normal. We banking high performers deserve to receive decent packages too… Let the Government outcry about insanity of our bonuses…. If they try to charge more tax on football stars, the UK football will look like Zimbabwean football… if UK wanna keep a world first class financial industry, they should forget the bonus culture and focus on their real job.