Monday, 16 February 2009

Bank bonuses explained

Why do so many City workers get what seems to be such huge bonuses?

Ignoring the very few "Bank bosses" and "supertraders" the majority of City workers get bonuses that are such a high proportion of salary because they aren't just bonuses.

You see if you are a bank employing hundreds or thousands of highly skilled professionals, your wage costs are enormous and so are the add-on costs for pensions, sick pay, paid maternity pay etc. So if you and your competitors all only pay (say) 80% of your staff's income as "salary" and the remaining 20% as a "bonus" in January then you have cut your pensionable (and allowanceable) pay by 20% and you have staff who might work a little harder to ensure they get this bonus. So whilst the "salary" is the true "salary" and the "bonus" is a true "bonus" and everything is above board for PAYE and NIc purposes, there is a reason for the size of the bonus.

Of course in the current climate of "bash the bankers" journalism, I don't expect anyone to look at the subject from this angle, just as I don't expect anyone to point out that the vast majority of City workers are not reckless traders but dedicated Middle and Back Office staff who don't earn six or even seven figure salaries but have come to rely on their annual bonus. They haven't been working less hard since the credit-crunch, indeed with all the City lay-offs most have been working harder and longer.

So if the BBC could look beyond their support for Gordon Brown they might find that all bankers are not bad and that some of the causes and exacerbating factors for this recession are home-grown and can be laid at the feet of Gordon Brown.

1 comment:

Unknown said...

Well put. BBC journalists should be the last to make comment on bankers pay - their salaries can be equally as big as some mid-level bankers and their salaries are funded by a forced tax on every tv owning household in the country.

I know bonuses in the public sector are a double-edged sword. The thought of public sector employees getting bonuses raises the hackles of many, yet the terms are often identical to your example - pay rises in the form of bonuses often deliver results.