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Cutting bonuses is a Herculean task

The tough talk emanating from Number 11 Downing Street in the direction of banks and their bonus structures is all well and good but is this the answer?

Bonuses were originally given as incentive payments to boost performance or as a reward to recognise contribution. While we had management integrity to monitor them they worked well.

But recently bonuses have been used to subsidise basic pay, which is a different ball game. This misuse of the bonus system is at the root of the MPs’ expenses scandal. If MPs were paid the right amount for the job they’d have no need of a slush fund from which to extract a subsidy under the smokescreen of expenses.

Now that there’s talk of curtailing bonuses it’s no wonder those eligible are getting twitchy. For many in the commercial sector it’s tantamount to forcing them to take a pay cut of some 50% to 100%.

My guess is that there would be less grief if a reduction in bonuses was accompanied by paying the market rate for the job. But the likelihood of this is remote.

Despite the pseudo-harmony expressed between nations post the G20 summit, it’s clear most are going it alone with their own variant on the theme.

The clawback of bonuses and bonuses issued as shares are sensible ideas. But in a free market economy where mobility of labour is a major playing card, introducing these might be a labour too far even for Hercules, let alone Alistair Darling and Gordon Brown.


Shadow MPC

This month’s decision: hold

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