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EDITOR’S TAKE: A bonus takes years of hard work

It’s all too easy to deprecate bonuses and all who receive them.

At their outer reaches, bonuses are difficult to justify. One individual in receipt of tens of millions (or even hundreds of millions in the case of hedge fund traders), is excessive. But most bonuses are not nearly so large: five figures frequently; six figures maybe; seven figures rarely.

While any bonus beyond the 1k received by cashiers at Lloyds is likely to evoke ire in the current environment, it should also be remembered that the receipt of an apoplexy-inducing six figure sum is often the culmination of a decade of dedication and sacrifice at the altar of 12 hour days.

Investment banking careers aren’t open to everyone. In the past decade banks have adopted rigid and rigourous recruitment procedues. Positions paying big bonuses are now usually accessible only to people who have worked hard consistently throughout school and university.

And when they attain a position in an investment bank, these people will typically be expected to work harder still.

Not everyone is keen on this, and not everyone, therefore, is in a position to receive a bonus.

There are anomalies: in 2006 some first year analysts straight out of university earned in excess of 100k; successful traders can (could) make big money relatively quickly. Many bonuses, however, take years of careful cultivation. And there’s always the risk of a major downturn and sudden redundancy before they bear fruit.

Comments (50)

Comments
  1. sorry Sarah you are totally off the mark. Banks are eligble to pay bonuses, but not when it goes begging to the taxpayers. No bonuses can be paid from taxpayers bailout monies.

    a surgeon also takes years and years to train. does he get a six figure bonus???

  2. well, normally people are not paid for efforts, but for the results/value added. otherwise people working in chinese factories for 14-15 hours a day since they are teenagers must receive the biggest pay.
    so i do not think your logic is correct.

  3. agree with sarah, silent or nothing to do attitude can’t help people get rid of those mind control beast,only ‘hard work’ can take out them.

  4. @ ALAN – if a bailed out bank pays no bonuses – the best people will leave to rivals that will pay them a bonus (free market economy). The bailed out bank will then have a lack of talent and will become worth less than it is at present (a bank has very little tangible assets – all it’s market value is based on the ability of traders / financiers to generate +tve cash flows) – ie your investment as a taxpayer will become worthless and you will have to pay higher taxes in the future to plug the governments funding gap…… It is therefore in your direct interest that the bailed out banks retain (and even recruit) the best possible staff in order for them to outperform their non-bailed out rivals…..this is the only way you as a taxpayer will avoid higher taxes in future

    A surgeon does take years to train yes – and those that want big bonuses go private (or into cosmetic) and earn as much if not more than the vast majority of bankers – it is their choice to stay within the NHS…

    your coments are reactionary and popularist – but sadly not based in reality..

    Sarah – think your article is spot on…

  5. agreed masha, all ppl working in chinese factory are under-aged, and they are forced by their slave-masters to work. and in return they do not get compensation, but only food and shelter.

  6. All of the above points are valid, but they do not directly explain why bankers make as much money as they do.

    Wall Street is a very small place and it’s no coincidence that such a highly lucrative industry would want to remain small and highly lucrative. Do you actually need an Ivy League (or Oxbridge/LSE) education and 4.0 GPA (first) to do a finance job? No. But making it really, really difficult to get an investment banking job is a good way both to limit how many people break in and raise the prestige (and most importantly pay!) of the industry.

    On the investment banking side, some of the fee structures (e.g. 7% for IPOs) are dated as well and some of the “products,” such as sellside M&A, are often commodities. Clients should not be paying millions of dollars for commodity services.

    Fees at these levels should not last but they likely will last because there is very little competition in the form of other banks willing to undercut and charge less. After all, no one wants to be the first guy in the room to make 1% on an IPO rather than the usual 7%.

  7. A 6-figure bonus takes “decades of dedication”? Absolutely hilarious. Its what about a third of my grad class got as 2nd year analysts, and what half of them as 1st year associates got – in this current horrific environment. If only you guys knew the truth – 22-23yos on 6 figure bonuses. Or are you only talking retail banking and back office where 6 figures takes decades?

    23 on 6 figures and proud Reply
     
  8. Sarah has a very valid point here. Those who are earning these bonuses have done so through hard work throughout their life and are still working very long days in their job. If you want to withdraw their bonuses, then expect them to work 9-5 as stated in their contracts and have a one hour lunch break which is a luxury in this industry.

    On the other hand, the government as a majority shareholder of RBS, surely has the right to decide whether its bankers should receive bonuses. What it decided should be best for RBS and taxpayers. Withdrawing bonuses may cause more harm by driving away its best people who are needed to save the company and recoup losses.

    However , what I hate is people who are clearly uneducated in the matter, throwing insults at these bankers out of pure jealousy.

  9. I find it quite amusing that surgeons are often used as a comparison to bankers in the pay/bonus debate (e.g. George Osborne and Alan above).

    Its well known that many surgeons rake it in through their private practice work (some consultant surgeons dont actually work that many NHS hours).

    A good friend who is a trainee surgeon (ear nose and throat) talks of his consultant boss rakes in close to a 1m a year. Yes he works all hours but so do many bankers

    So Alan you are right, surgeons do not receive 6 figure bonuses, many get 7 figures…….

  10. 23 on six figures and proud – the ‘decade of dedication’ is not just about the time spent working in banking. It’s also the time spent getting into a position in which you are eligible to be considered to work in banking.

    Sarah, Editor, eFinancialCareers Reply
     
  11. @ AA – spot on! I think the masses outside banking genuinely think all bankers earn millions and drink champagne all day….probably stoked by the jealous whinings of Peston et al on the news daily. Reality is those 23yo’s on 6 figures rarely leave the office…

  12. to still@Lehman : no wonder lehman collapsed with illiterate bankers who can’t read properly. I said (and read this clearly this time) : banks who do NOT go begging to the goverment are entitled to pay bonuses. Banks who are bailed out by the taxpayer are NOT.

  13. TO AA: I am an alumni of a top business School like HBS or Insead and have worked in the I Banking industry and made lots of money while I was there. However I still say : no BONUS FOR THE BANKS BEING BAILED OUT BY THE TAXPAYER.

  14. This article is ridiculous. The banks should be let go to bankrupt and new ones should be created. I would be curious to see how many million dollar bonuses would be paid in that case… What is happening is a slap in the face of the millions of people who work 10-12 hours every day and don’t get anywhere near a banker, but their taxes are being used to pay the most overpaid class of workers in the country. All the banks got government money or guarantee from the state and the ECB, don’t come here and tell me they would have made it without. Even GS had to become a bank. So the money the employees are receiving is totally unjustified, because they wouldn’t even have a place to work without state help. And your feeling of self entitlement is a shame.

  15. Sarah, the point here is that should we be rewarding a decade of dedication to self-serving greed ? Fine, if a bank makes considerable profit then it can reward its employees as it sees fit. However, many banks are not making profit, and exist only because the tax payer has bailed them out.

    An employee is only worth what an employer thinks they are worth. And we as taxpayers do not think any bonus is justified. Nothing, zero, even for those that have made money. That money is for keeping the bank afloat, not for paying bonuses.

  16. still@Lehman – there is a huge flaw in your logic. as an owner (whoever it is, taxpayer or a private shareholder) why would I want to pay you a bonus if you brought me losses? According to you, I should retain “best-in-class” personnel and pay them millions even if they racked up billions of losses? Just to sustain a competitve “advantage” on the street? What kind of advantage is that?
    I agree banks should use more discretion when it comes to paying bonuses. M&A bankers are highly unlikely to bring losses to the bank, though they may not bring profits at all (but hey thats why they get redundant, dont they). Accordingly, I think compensatition at corporate finance divisions should remained tied to the volume of deals bankers bring in.

  17. sorry everyone – got my last 2 comments wrong – banks who got bailout meny should of course be able to pay bonuses…

  18. If you tie corporate finance pay to deals brought in, won’t people be encouraged to push inappropriate deals?

  19. still@Lehman “Reality is those 23yo’s on 6 figures rarely leave the office…”

    How ridiculous. Utter nonsense. I work less than 55 hours a week, and have done consistently during my career.

    If you’re a front office associate and not getting a 6 figure bonus its time to move before you get screwed over any more.

    6 figures age 23 and proud Reply
     
  20. @Anon..I agree – but see the press today – RBS claim only 500 people caused those losses out of 171,000 staff – the popular press wants to rule out bonuses for everyone it seems – my point was you need to retain the best in the areas in which you want / need to be competitive. Paying zero bonuses (across the board) in bailed out banks will not help RBS’s cause (or ability to repay the taxpayer) if their competitors are prepared to pay them…why would anyone want to stay there / join?

  21. banks should NEVER be allowed to pay bonuses if they get bailouts.

  22. still@Lehman MAKES A GOOD POINT

  23. Most people in IB are in it because they love the job – People saying people will quit if not paid millions are mistaken i think.

    The bonus pools were inflated by the credit bubble and have therefore burst with it and excesses will be flushed out.

    Bailed out banks should maintain bonuses but at the lower level than their non bailed out colleagues – if people leave , they will be able to hire good people for less in the current climate.

  24. i LOVE MY BANKING JOB – BUT id still move if i thought i could get a bonus elsewhere if my bailed out bank stopped paying them!

  25. at least still@lehman understands impact of across the board nil bonuses on the tax payer / owner and the long-term cost of any bailout. banking comp prob does need a fundamental review but populist press / politician knee-jerk ain’t the way to go…

  26. hate prop trading desks and capital markets of any kind! bustards, you should never be paid bonuses again in your life. go do some accounting jobs. And this go to FO star in first place.

  27. Hey I’ve got a great business idea: put 1000 monkeys in a room and let them play the stock market. Those that lose money get a tax payer subsidy to cover their losses. Those that make money get a big bonus every year.

    OK, if you insist, I will sack the monkeys that lose money, but I must hold onto the talent that makes money, and I must pay them a bonus because they made that money fair and square eh ?

  28. We really should have let the banks go bust that we badly managed . There maybe pockets of excellence but overall many banks have destroyed value, taken from the economy and are bust. My tax should pay no bonus to them or help them survive. Let them die and put my tax to things I want the UK to invest in. Im sorry you may be good but not that good in that if you chose to joing ANY entity that destroyed value and is insolvent you get nothing. Ever heard the phrase busy fools? – sums up alot of bank employees – UK taxpayers should not pay for this – let the sick banks die and save all all this bonus debate as they would get nothing from an insolvent bank.

  29. Just have a couple of questions:
    Q1. If I replace the words of “investment banking” in this article, to something like Automobile,Detroit etc, will the same logic hold? If it does not hold, why?
    Q2. Some banking employees are effectively civil servants, so why only the best people in finance receive bonus, but not the ordinary civil servant? Some civil servants are doing their job properly!

  30. I work for a bailed out bank and do I feel not getting a bonus is fair? Absolutely not. I work long hours in what has been a very profitable part of the business and would hope to get remunerated accordingly. I appreciate the public anger as the media continues to sensationalise the issues and create an anti banking frenzy. What Joe Public often forgets in situations like this is that in the boom times when we are paid handsomely and work long hours, our bonuses contribute billions to the HMRC. Do we ever get a pat on the back for contributing more tax than others? No, we do not. Completely agree with still@Lehman. Excellently put if you ask me.

    Bailed bank bonus? Reply
     
  31. @giles.percy

    Are you currently hiring?

  32. LOL then why ever allow ANY firm in ANy sector go bankrupt? Let’s just pay ourselves big salaries and if things go sour we will ask for public bailout, right? Do you think that people who work in companies that happen to go bankrupt didn’t work long hours? The only reason why banks were not allowed to go bankrupt is for the impact it would have had on society. We saw what happened with Lehman. This doesn’t mean you deserve a bonus. Your firm still exist because it is better for society, but the public, and the government, shouldn’t care about Ibankers. You happened to work there so we had to save your ass. You’re nothing though. Go work to some banks that was not bailed out if you want bonuses.

  33. people saying they should get a pat in the back because they pay a lot of taxes in good times: there are a lot of people paid less than 20K (or not paid at all) who have a much bigger impact on society than you. They deserve all the pats in the bag. The bonus entitlement only works when the Firm you work for is profitable.

  34. People who earn the most, in any sector, are the ones at the top, but because banking is poorly understood by the majority and the individuals not known to them, they are blamed for systemic issues, but nobody suggests David Beckham should take a cut because one of the football clubs goes bust

  35. Its simple its my tax and I wish it not to go to pay bankers bonuses. If you has earnt value tyyou would have the cash to pay your bonuses, but you dont. I dont care how hard you worked in destroying value and the world would be better off without you for the last 3 years.
    Its my tax money and I dont want to give you any of it – just go bust!!
    Its my tax money and I dont want to give you any of it – just go bust!!
    Its my tax money and I dont want to give you any of it – just go bust!!
    Its my tax money and I dont want to give you any of it – just go bust!!

  36. I completely agree that people who work for charities and do helpful, caring jobs definitely deserve pats on the back (or in the bag – see above?). I have nothing but respect for people who like to help other peope, and do so for considerably less than us bankers. However, my view is that if you work in a hyper-stressed atmosphere for 60/70 hours a week earning millions of pounds for your firm (which will ultimately be used to pay the taxpayer back), then why not get a bonus? Alternatively, de-incentivise us to the extent that morale is low, productivity is low and taxpayer loans take much longer to pay off because no one can be @rsed or has left to go somewhere else that is paying bonuses (despite receiving state aid).

    p.s. I never said I want or deserve a pat on the back. I expect to be disliked (and accept it) for wanting to earn a high salary and bonus.
    p.p.s I know nurses etc work long hours in a stressful environment too, but nursing is not for me.

  37. There are surely a large number of conflicting, yet important points here:
    * The Banks we are talking about (RBS, HBOS, ML etc) are not single entities. In reality they provide a huge number of services, is it really fair to not pay a targetting hitting employee in Equities who has produced record profits no bonus due to the failures in the CDO/ CDS area?
    * Most individuals in the bank do not earn stellar bonuses, however the 2-10k which they do get is a vital part of their budgetting and taking it away from them would have larger knock-on effects to the wider economy.
    * There needs to be a balance between ensuring we do not reward failure and excessive risk taking while also ensuring that as tax payers with a vested interest we make these businesses as successful as possible in the longer term.
    * Why is there not more pressure being put on the regulators, central banks and rating agencies who allowed the environment to flourish in which this risk became part of the business.

    Personally I think some banks should have been allowed to fail, short term it would have caused huge pain to everyone but our approach at present is surely causing substantial long term problems.

  38. Ban bonuses completely for bailed out banks and see what happens. Taxpayers will lose out. Do you think shareholders pay their staff bonuses because they feel like it? No, its beacuse that is the most profitable option for them and why non-bailed out banks are continuing to do so. Loss makers have been fired and the best people who are going to help recoup losses have been paid accordingly.

  39. Equities desks were happy to get CDO/CDS financed bonuses back in 2002 and 2003. A self-respecting investment bank understands that business is cyclical and that one business doing good one year doesn’t mean they will do good the next – that’s what people are talking about : reward LONG-TERM success. IBD should not be run like hedge funds they are market markers, deal arrangers. They should serve clients not gamble with money.

  40. The public definitely have a right to complain about the bonus culture in bailed out banks. However most people do not understand the impact the banks have had on the UK economy in the last 10-15 years. If banks were full of people like Sharky, we would have a much lower standard of living. I work as a quant in an ib. I work 11-12 hours everyday while my friends in other industries work 8-9 hours max but are on the same basic salary as me. Without a bonus, why would you expect any smart people to work in a bank??? And, without competitive banks, you can say good bye to all your luxuries which you take for granted. UK isnt a manufacturing economy anymore. Financial services is a major part of the economy.
    Say all you want but bonuses are a permanent feature of banking jobs.

  41. Coco, we don’t need many “smart” people like you in banks. We need dull professional people who will make considered investment decisions. Quants like yourself have spend 11-12 hours a day for the last ten years obfuscating risk by creating highly complicated credit models. These models are so far removed from reality that it is laughable that were are used to price anything. What we need is simplicity and transparency, not convoluted C++ and multi-factor stochastic gibberish.

  42. bonus take years of hard work? You are having a laugh luv! I demanded a bonus as soon as I joined and my manager agreed, because he knew I was A very talented chap. I’d be making just as much in a foreign bank in a foreign location if I wasn’t here.

  43. Bonuses take years of hard work?? WHO HONESTLY GIVES A ****. what a crock of cow dung! A bonus is exactly that, it’s a bonus… take a dog for example, you give a dog the basics to survive (water, food etc…) and it performs the way a dog should – however if a dog performs a trick you’ve taught it, it should be rewarded, a doggie biscuit would be the bonus! The fact rewards/bonuses are still being given out in this climate is mental… I mean c’mon a bonus for hard work…. and yeah I don’t doubt bankers don’t work hard! But working hard at what… CREATING A RECESSION maybe… who knows (no need to play the blame game)!! But majority of these people certainly should not be rewarded let alone given bonuses… it seems it was a combined effort of failures (in the financial/banking world) leading to current circumstances.

    beentheredonethat Reply
     
  44. So if 171,000 dogs all learn tricks (some learn some really good tricks, which impress even the most anti-canine among us) and 500 mutts sh*t and slobber all over the place, what should one do? Send the 500 stinking, flea-ridden hounds to the pound and have them shot? Maybe.

    Surely then, some of the thouroughbred, well groomed, Crufts-bound pooches deserve something for their efforts?

    I know we’re all in the doghouse here, but throw me a bone………..

  45. Nope, banks are essentially money lenders and any old mutt can do that when the goings good. You lend money out at a higher rate than you borrowed, then wait for all the cash to come in. When the market gets tighter, you have to invent all sorts of ingenious and underhand ways to make a profit, but the idea is the same. Eventually everybody lends so much that people cannot pay back – we have lent past our economic growth – and the system collapses.

    I see no thoroughbreds or geniuses or talent or anything of merit here. It is easy to find people who will take risk and so make money. We don’t need to pay a bonus, because I can find a million other monkeys who will take your place. And when times are good, they will make money …. and so the cycle repeats.

    No need for any bonuses here.

  46. A bone…

    Agreed, surely some of the ‘mutts’ deserve something for their efforts and yeah again some of them may have worked extremely hard and expect a bonus which is fair enough! A lot of good dogs have been canned, and on the other hand dead weight has been dropped, however – WHO GETS what? is the question.

    Undoubtedly there are still useless dogs lying around claiming they deserve big FAT bonuses… when they should consider themselves lucky to still be there… naturally they expect bonuses and then… here we go AGAIN, everybody claims to have worked hard and deserve a reward, BUT if a percentage of people worked hard and a % of people didn’t and everyone is claiming they did… who decides??

    What some people view as hard work and A LOT of effort others may find irrelevant thus leaving a gap between people who claim to have done this & that and others who actually put the elbow grease in and did it!

    beentheredonethat Reply
     
  47. Giles, if you went to a restaurant and paid them lot of money to cook you a special extra hot curry. Who is at blame if you fall ill? A quant’s job is to create models for whatever product the market demands. We’re just doing our job of creating a ‘synthetic’ price for these products. Everyone knows that these prices are synthetic. Its not really a quants fault if a trader does not know how to interpret these models – they shouldnt be using the model if they understand it.
    The models for structured and corrleation products are quite complex as you say but the models only exist because there is/was a demand for these products.

  48. no bonus for banks got who a bailout. Employees who can’t take it, -please just do us a favour and quit.

  49. Everyone’s missing the forest for the trees. The ability to create money out of nothing through various instruments caused a widespread cycle of bubbles that led to unsustainable asset prices which in turn fed into profits at banks that paid out ridiculous bonuses. Without these bubbles, no one in equities, real estate, mortgages, etc would have been able to get these payouts. Neither would the regular stock investor or home owner experienced such gains. FACE IT! All of us got huge BONUSES in the last few years,whether it be paid by the bank or the economy. No one was an investing genius. So now that the bubbles have popped, I hope you had been wise with your opportunities. Now can we please have some sanity back in terms of risk/rewards???

  50. You brit lame-asses are going down

    What else have you left to sell ? no more energy left in the north sea and no more financial services for a few years

    To the laid off investment bankers et al. :

    please don’t come to Canada to pan-handle !

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