fb

Bankers’ bonuses. Necessary, a necessary evil or just evil?

Bankers’ bonuses. Necessary, a necessary evil or just evil?

A lot has been said about bankers’ bonuses in recent years, with a general view amongst the public that paid to bail out the banking system that they are excessive.

Bankers, unsurprisingly, say that without packages that include large elements of performance-related bonus, the banking industry would not attract the top talent that a complicated business needs. So goes the argument.

So who is right? The answer is simple enough; they both are.  Without bonuses, ambitious people are likely to relax, creating inefficiency. As banking is widely seen as the central nervous system of the capitalist system, lethargy in banking would hurt us all.

Yet it seems that many bankers (other than directors of the bank) had bonus systems linked only to short-term profit measures. Had they been paid in a more carefully crafted cocktail of short- and long-term measures that deterred risk taking (eg long-dated share options), then the perceived pattern of excessive risk taking for inadequate return may have been curbed. Perhaps the same discipline that affects the remuneration committee should pervade all remuneration deals.

With ambitious and aggressive people the rule is simple: WYPIWYG (what you PAY is what you get). If bankers were paid to take high risks on derivatives and not held back in pay terms for taking risk, it might be harsh to see it as their fault for doing what their remuneration package incentivised them to do.

Putting together a remuneration package for a banker without bonuses is arguably like making a cosmo cocktail without the vodka.

Speaking of which, I’m writing this on a Friday at 8.00pm. Time for a cocktail of my own. Cheers!

Share this entry

Recent articles

View All Articles
Big 4 under the spotlight…
May 22, 2024
Title
Big 4 under the spotlight…
Excerpt

Recent findings have shown that Britain’s audit firms did not raise alarms for three-quarters of the major companies […]

Better than the professionals?
May 13, 2024
Title
Better than the professionals?
Excerpt

The landscape of investing is evolving, with the rise of retail, or “do-it-yourself” (DIY) investors who are achieving […]

Don’t get angry over anger management
May 07, 2024
Title
Don’t get angry over anger management
Excerpt

Have you ever been angry at work? If you have then you are not alone. The latest Global […]

Cows or dogs in your portfolio?
May 01, 2024
Title
Cows or dogs in your portfolio?
Excerpt

As well as being included in ACCA, CIMA and CMA (USA) exam questions over the years, the Boston […]

KPMG unlocks previously locked up talent.
Apr 30, 2024
Title
KPMG unlocks previously locked up talent.
Excerpt

KPMG, one of the Big Four accounting firms, has recently announced its commitment to expanding its hiring of […]

Taxing times…
Apr 24, 2024
Title
Taxing times…
Excerpt

Understanding the various forms of taxation is essential for business students worldwide. Taxes serve not only as a […]

From Coins to Codes: A Budgeting Timeline
Apr 22, 2024
Title
From Coins to Codes: A Budgeting Timeline
Excerpt

The concept of budgeting, a cornerstone in both personal finance and corporate management, has a rich history that […]

Italian but not Italian…
Apr 17, 2024
Title
Italian but not Italian…
Excerpt

In the complex landscape of global business, the names of products and brands hold significant power. They convey […]