Banker's bonuses

[Legal Beagles]

Would they really refuse to work without one?

More...

[natweststaffmember]

Re: Banker's bonuses

Q&A: Do bankers really need their bonuses?


Money talks - but does it have to shout so loud to get a banker to work?

As the banks reporting season continues apace, the scale of bankers' bonuses is again under the spotlight.

The banks continue to show the scars of the credit crunch - but to many observers it seems those responsible for the financial crisis are still riding the gravy train.
BBC News asked Chris Roebuck of London's Cass Business School to set out the arguments.
DO BANKERS NEED BONUSES?
Every job needs to offer an incentive - hence the idea of performance-related pay.

That also minimises risk for organisations, paying for performance after it has been delivered, rather than before in the hope it will be.

In any job, the question is how to balance salary and bonus.
In theory a large bonus and a small salary is the best combination, but people need money to live on, so in many organisations it might be 75% salary, 25% bonus.

In sales that ratio can be as far opposite as 10% salary, 90% bonus.

In banking, the base pay is more than most people get anyway so bankers can live on that without much problem.

So there are no issues in paying bonuses that could be 80% of total remuneration.

DO BONUSES NEED TO BE SO BIG?
The only reason one bank needs to pay such big bonuses is that other banks do the same



Yes and no!

The main issue is that bank transactions themselves are just so big in financial terms even a very small percentage bonus on a deal done is a big amount.

From the individual banker's perspective, they want to be paid what the market rate is for what they do - as does anyone.

But the only reason one bank needs to pay such big bonuses is that other banks do the same.

If all the banks paid a much lower rate then that would be the level bankers would accept - the market rate.

A key question is what other industries pay. When you get bankers leaving banking because they get paid more outside banking, then that suggests the pay has dropped to the minimum level.

That is too low, and if you want the sector to do well and bring in money to London, the optimum is about 20% higher than that point.
Here, bankers would stay in banking, bring in profits for London and earn a fair wage.

The problem is that this has to be applied globally or the bankers, and banks, will just move to where the pay or profits are higher.

So the answer lies with the politicians to unite to make that happen.