Page last updated at 05:59 GMT, Wednesday, 13 January 2010

City Diaries: Bonuses

Man looking at a falling graph

This week our City Diarists discuss bonuses. Are they in line for one this year? Do bonuses provide an incentive to work harder? How will they spend it and are they annoyed about the attacks on bonuses?

These diaries are written by people who work in finance and have had a front row seat as their industry goes through the biggest changes in decades.

They give us regular insiders' updates on the mood in the City of London and the dramatic changes in the world of finance.

MARK

"Mark" (not his real name) works for a stockbroker outside London.

Bentley Continental Flying Spur (L) and a Ferrari (R) in a showroom
"People have this idea we are buying new Ferraris"

Just before Christmas, I received into my bank account my annual bonus. As it is, I am unlikely to see very much of it. Save the usual income tax and national insurance, I am, like a lot of married men, also subject to wife tax! My wife has been calculating what she can spend the bonus on since it was announced. To be honest, most of it will be dropped into a savings account for the foreseeable future, as I really don't think we have turned the corner yet. Popular opinion would also see a further tax, a windfall tax, a tax because others in other parts of the industry have made huge mistakes. This hugely irritates me.

Embarassment

My bonus is non-contractual discretionary bonus which is based on my performance during the financial year. In many ways, it is a profit share. If my division is profitable, a percentage, is paid to me for my contribution. Some of it is paid in shares, some of it in cash. In terms of shares, this encourages long-term commitment for the staff but also, ensures that decisions are based on the long-term. A significant proportion of shares in my firm are owned by the staff, which must be encouraging for the shareholders.

Although I feel I have done very well this year and I can demonstrate real value for the firm, I will not mention my bonus to anyone, not even family. I have almost become embarrassed by the fact that I actually get a bonus and generally, duck the question of bonuses when it comes up. I do, always, get asked if it makes me work harder.

Motivation

Personally, I don't think I do. I think I would work hard regardless. Over the last two years, my bonus and pay rise have dropped by over 50%. This is not based on my performance, which has been consistently high over the period, but the general profitability of the firm. Prudent management has seen the board reduce the pay awards which is very important for the long-term security of the company. Despite the pay freeze that I endured last year, I would say I worked as hard as ever, perhaps even harder, because I knew long-term it would be in my interests as a shareholder.

At this moment in time my bonus feels like dirty money

For some of my colleagues, as in any firm, the bonus is the main motivation to work. This is no different to my time in retail, where a profit share scheme was also in operation. This is simply because money motivates people.

However, at this moment in time, it feels like dirty money. The press coverage, in the same way as the coverage of the run on Northern Rock, often does not provide a balanced argument. Some of my colleagues do not even earn the national average, even with their bonus. Yet if they mention working in financial services and a bonus, people immediately have this idea they are buying new Ferraris when in reality, it is keeping their family going. Yes, there are big earners in every firm, as there are in every industry, but it is ridiculous to think that every firm has been bailed out and every employee is picking up hundreds of thousands.

2010 is likely to be pivotal year in the world economy. I am glad to go into it with a modest bonus payment and a moderate pay rise. I will continue to work hard to reward my employers for their faith in me but no doubt I will have to worker hard to convince people I am not a stereotypical banker!

LAURA

Laura (not her real name) works for a commercial bank in London

Workers silhouetted in front of the Canary Wharf skyline, London
"Public anger at all bankers is both hurtful and frustrating"

I have been following the BA strike story with interest. The banking sector typically has under 20% union membership - not because we are all over paid so don't care but because there is a degree of entrepreneurial spirit inherent to those who work in sales or lending roles. We generally have faith that if we work hard, show ingenuity and help the team we will be fairly rewarded. That faith is waning.

The majority of people who work in banking are not investment bankers, they are people who handle your cash, ensure your internet banking doesn't go down, or put together lending packages for businesses or individuals to achieve more of what they want in life. Public anger at all bankers is both hurtful and frustrating. A whole industry of more than 100,000 people has been damned because of the actions of a few. It is as logical as the argument that a religion is bad because a few bad apples use the banner of that religion to further their own violent or hateful agenda.

Excessive pay?

In my contract of employment I have a recommended bonus level which is paid on income I bring to the bank over and above my annual target. However, there is a discretionary element to this which means this year I will receive less than 20% of what I would normally be paid. Regardless, the maximum amount I would have been paid would still be less than the recent bonus tax threshold.

I am lucky - most of my colleagues didn't get anything

I more than doubled my target this year bringing in an income to my employer worth several hundreds of thousands with no losses or loss provisions. This amount is several times higher than my total remuneration. Am I paid a lot in relation to the average wage? Yes. Am I paid excessive amounts for the work I do? No I don't think so.

This year I am going to buy a new boiler with my bonus as the current one is old and failing to cope even in my tiny two bedroom place. If there is any money left I will pay a bit off my credit card which was used to buy my annual holiday this year - not a great example to set I know but most bankers are rubbish with their own finances!

Scorn

I was lucky however - most of my colleagues didn't get anything at all this year as the entire year was spent trying to help customers cover their debt or reprice loans which were making us a loss due to the LIBOR issue. When you are in a sales environment that is turning inwards, not making new 'sales' is a disaster for your target. Managers often have not been sympathetic to the fact we are all in the same boat. I have lost many colleagues this year who have been laid off for not keeping pace despite their best efforts. Many more are on performance monitoring with draconian big brother weekly checks on activity and income.

Thankfully I have never relied on a bonus to pay my normal bills. There are moments where I love my job but like most people I ultimately work because I get paid and I need to be paid. I am angry with management for not protecting us from the rest of our industry going down as we had no sub-prime. I'm demotivated to do more than my target this year as profits have been paid to shareholders rather than split with staff this year. Mostly I'm tired of having my hard work for my customers belittled and scorned by people who don't even know me.

STEPHEN

Stephen (not his real name) has worked in the City of London for over a decade.

City workers walk across London Bridge on their commute to the financial district
"Bonuses are going to be so big, it's actually rude"

As a new year begins, I have been looking back at 2009 which saw some big changes in the City but it was also a time of personal change. I have moved from a trading team at a large investment bank to a smaller, independent operation. The new place is happier, more relaxed and more personable; but if it fails, nobody will bail us out. No longer "too big to fail", I'm now "too small to bail", and I like that.

Whispers from friends at the banks are that some bonuses for 2009 are going to be on a scale that even before the crisis was unimaginable. "Bonuses are going to be so big, it's actually rude," said one. "2009? It's like 2008 never happened!"

I feel a mixture of quiet despair and utter helplessness when I hear this. The banks would not exist were it not for our central bankers' mercy missions, now to be paid for by children.

I don't see why the rest of the nation should bail me out if I get it wrong

Far from being contrite, those bankers I know who are not in line for bonuses express a kind of contemptuous mirth at having to do their jobs "only for the salary". A study earlier this year by the financial stability wing of the Bank of England made clear that the majority of banking profits (going back a hundred years) stem from leverage, not the brilliance of bankers, but this seems lost on the general self-regard of City types.

Maybe I'm a rare soul, but I don't see why the rest of the nation should bail me out if I get it wrong. Maybe I'm just old fashioned but I always thought that the rules of the City should apply only to those who agreed to work within it.

Bankers' bonuses v MPs expenses

But what's even more incomprehensible is to see more public rage about the "mere" millions of politicians' expenses than the now-trillions invested in bank rescues worldwide.

Is it because we vote for MPs and delegate trust to them that we feel so personally betrayed? Or is it that it's beyond human power to comprehend the bailout trillions? Maybe it's easier to engage with the lesser but more concrete issues of duck house, bell tower, moat or plug, than the abstract language of high finance?

As 2010 begins, some individual bankers at bailed-out institutions are going to get bonuses that are comparable to the total of all of the contested Westminster expenses. As Robert Peston points out, even the Treasury underestimated the proceeds from the one-off bonus super-tax

But these bankers are not public figures so the process of enrichment escapes public scrutiny. And then there's the pension pots of some of the disgraced former banking chiefs - also greater than any individual MP's expenses, but since they're gone, there's no public ire there either.

So why are our politicians consistently in our news more than any individual bankers? Is it because we secretly knew, during the boom years, that we were having it too good and would one day pay for it? Is it a way to deflect blame from ourselves? Or is it because the Chancellor exemplifies doublethink with his simultaneous pledges to end casino capitalism and to cut the tax on bingo?

The thing is, we do not elect our bankers. So ultimately our collective rage at our politicians is because we feel betrayed by those whom we elected to protect us, and on whose watch the bubble blew and then popped. And we've seen bubbles blow and burst under both blue and red political cover.


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