The Bonus Culture

Posted on: 14/03/2013

Those who do not have the potential to receive massive bonuses are in most cases very critical of high bonus payments.

This is hardly surprising. With the average wage in the UK being somewhere around £26,000 a year, it is hard to expect recipients to accept that another person might be "worth" or have "earned" a £Millions bonus for one year's work.

Of course, some individuals feel they deserve massive bonuses because of their efforts.

It is easy to understand this thinking. In some businesses, an individual can personally produce many £millions of profit. Why, such an individual might argue, shouldn't I get 5 or 10% as my share of what I have earned for the business?

In the end, in our capitalist system, we have to accept that people are entitled to earn what they can persuade the business they work for to pay them. Owners - shareholders - must have the right to approve or reject bonus schemes. If they approve, in our system , that has to be the end of it.

However, there are complications.

For example, those that work for the Government - civil servants - cannot normally expect to earn substantial bonuses.

Civil servants are not credited with making profits. Generally, they spend - and earn - tax payers money.

However, there are of course grey areas, especially where the Government intervenes to rescue commercial operations.

The Royal Bank of Scotland and Lloyds Bank have both benefited from support from UK PLC. A corporate entity set-up to hold bank shares seeks to keep the relationship with the Government at arms length but the fact remains that the investment has been made using tax payers funds.

I have to say that my instinctive reaction to significant bonuses being paid by Government controlled banks is extremely negative. As with most people, a red mist descends and thoughts such as "why should they be rewarded for failure" hit the frontal lobes.
A cool analysis, however, leads to a somewhat different view.

The Government has not nationalised the banks in question. They are being prepared for re-emergence as companies owned by private shareholders. When and at what cost to tax payers are two questions that remain to be answered.

Banking is of course changing and there are various international moves underway to control levels of bonuses.

The Royal Bank of Scotland and Lloyds will change as banking as a whole changes.
Until then, it seems the long-suffering UK Public - you and me - will just have to grit our teeth and accept that bank bonuses are part of a culture that will not change overnight.


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