Bonus swings and base salary roundabouts

The focus on UK bankers’ bonuses is reaching all the way from Parliament to the shivering masses on the trading floors.

Here's the latest from our Highly Placed Professional:

Labour leader Ed Milliband wants to cap RBS bonuses, while the EU has already legislated a 200% of salary bonus cap. All these measures, of course, serve to limit the cash element of bonus payments, so you end up owning loads of dodgy bank stock. So far so horrible, but at least the bankers involved do actually get to build up some wealth - or, in the case of the London based bankers, service their multi-million pound mortgages.

Consider what it must be like to do a trade at a brokerage that nets your firm $500,000, of which you might expect to take home about $200,000. Your colleagues give you high fives as you waltz to the sales manager’s office to brag about the trade. Not all of them are smiling, though, as they grit their teeth in the knowledge that they are having a rotten month. When you return from the corner office, however, you’re not smiling either: 'The rotten s*d is holding back 80% of the payment this month as the floor isn’t doing so well, and I’m behind on my draw! I don’t believe it!’

Even at shops where you eat what you kill, there are always speed-bumps in the way of formulas that promise fixed pay-outs. There’s a lot of politics where money is concerned, in just the same way as there is in account distribution, assigning trading books and promotions.

So, when it comes to discretionary bonuses in an acutely disapproving atmosphere, it’s no wonder that banks are dragging their feet and managing expectations (downwards).

But then there's the law of unintended fixed bonus consequences - last weeks’s announcement that the UK minimum wage is set to rise by 11% sends a somewhat ironic message to the most fortunate in society too. It won’t be long before bankers demand - and receive - higher basic pay packages, just to be able to cope with the cost of living in London. As in many aspects of life, it’s simply a case of swings and roundabouts.

image: © John Lustig

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