Sarah Butcher, editor of eFinancialCareers, on why big banking bonuses are no match for oversize payouts in the public sector.
The newspapers (and eFinancialCareers) are bursting with speculation about the mega-bonuses banks are expected to pay soon. But before we all get too carried away on the subject, it’s worth bearing in mind that 2006 is the exception, not the rule.
The Financial Times last week highlighted five public sector employees who earned at, or close to, 1m last year – Bob Kiley, the ex-Transport for London commissioner; Adam Crozier, chief executive of the Royal Mail; John Armitt, chief executive of Network Rail; his deputy Iain Coucher; and David Mills, the Post Office chief executive.
Now while all these men have undoubtedly earned their money (responsible as they are for huge public-serving organisations and many, many thousands of employees) their pay is a lot more secure than that of the average banker. Take Crozier: a mere 25% of his million pound package was down to how well he performed. The entire Christmas post could have gone astray and he would still have received 750k plus.
By comparison, a banker earning 1m+ will receive at least 85% of that in a performance-related bonus. And while bonuses are likely to be strong this time around, the foibles of the market are such that they may not be the next. It doesn’t take an elephant to recall the dark days of 2002, when bonuses were scarce and most people were simply happy to have a job.
As a result, this year’s bonuses, which are likely to be at record levels, should be seen as exceptional in a literal sense: their worth is spread across the rest of the cycle.
Combine this with the fact that banking careers are frequently cut short (Lord Mayor David Brewer told interns assembled last summer that the average age in one US bank in the City is just 31), and four or five years of good payouts should arguably be averaged over a working life. Over a forty-five year period, 5m amounts to around 111k a year.
This is a lot of money. It is not the same as receiving 1m per annum for the foreseeable future – for that it may be necessary to work in the postal service.