MT Masterclass: Bonuses

Become an instant expert in the City bonus culture...

Last Updated: 31 Aug 2010

What are they?

To the ordinary person in the street, a bonus is something unexpected, a pleasant surprise. 'That's a bonus!' you say, when a bus arrives just as you reach the stop, or when you find a stray tenner on the floor. In the City of London, however, a bonus has become an (almost) automatic payment, something expected, even demanded. Job applicants enquire about both the basic pay and the bonus in the interview: there doesn't seem to be much conditionality about it. This is not only bad performance management, it's also an abuse of the English language.

Where did they come from?

The 'bonus culture' took root the 1980s. The Big Bang in 1986 changed the rules of the game. Old-style City partnerships came under pressure to change. The influence of Wall Street prevailed and basic pay became just part of the story. Bonuses that represented a large proportion of basic pay became available. But the trouble with such reward schemes is that they encourage extreme risk-taking. The US sub-prime bankers who lent hundreds of thousands of dollars to people who would never be able to pay them back certainly hit their targets and got their bonuses, but they brought down the global banking system as well.

Where are they going?

Nowhere. Goldman Sachs, Barclays, JP Morgan Chase and HSBC have all been recording remarkable results, and their happy band of bankers will collect spectacular bonuses. Not all of them, but many. Are they embarrassed to receive large cash prizes at a time when unemployment is rising and the rest of the economy is barely recovering? Do they worry about what the media might make of it all, turning them into national hate figures? The answer to these two questions is no and no.

Fad quotient (out of 10): An ironic 8.

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