Is this the end of bonus culture?

The punishment, finally, has come.

Finally the punishment has come. After years of banker bashing, public rage and political incredulity, bankers, it seems, are ultimately being hit where it hurts – their bonuses.

The bonus cap, announced on Wednesday, comes not from the UK Government, but the EU, who seemed very pleased with the result: Othmar Karas, the European Parliament’s negotiator said: “For the first time in the history of EU financial market regulation, we will cap bankers’ bonuses”.

But banking is only one half of the story. The excessive bonus culture, inherited from the 80s, has permeated just about every financial trading institution. Hedge funds, those opaque offices of Mayfair that have given us vocabulary like “futures” and “swaps”, are also likely to have their bonuses capped. Other traders could also see regulation: asset managers, investment managers, fund managers; the list goes on. So is this the end of bonus culture?   

Probably not, no. Although financial institutions threaten to go abroad, the list of regulatory-friendly destinations is getting smaller by the day. No, it is much easier just to bypass the rules. The obvious solution is simply to raise salaries – the norm method of gaining more pay before bonuses. An increased salary will also see bigger bonuses as the EU proposed cap is fixed to salaries at a ratio of 1:1 (or 2:1 with shareholder approval).

Long term bonuses-type rewards will also be exempt from the cap. Rather than receiving the usual Christmas bonus, bankers can earn a quarter of their salary through instruments deferred for five years. Other complex structures and financial vehicles will be set up to fall outside EU powers and confound Brussels policy makers. 

Like smoking, financial institutions seem unable to quite their bonuses. Discouraged by Government, banned from public places and shamed by society, bonus baiting goes on.

Photograph: Getty Images

Oliver Williams is an analyst at WealthInsight and writes for VRL Financial News

Show Hide image

The NS Podcast #230: It's (New) Party Time

The New Statesman podcast.

Helen is joined by Anoosh to consider whether a new political party would have any chance of success in the UK. Then they discuss the TV shows everyone really likes to watch but doesn't admit to and analyse why the quality of Don't Tell The Bride has declined. Finally, a bumper You Asked Us section including listener questions on social care, punching Nazis, the Tory economic agenda and more.

You can subscribe to the podcast through iTunes here or with this RSS feed: http://rss.acast.com/newstatesman, or listen using the player below.

 

Further reading:

The NS centenary debate from 2013 - did the left win the twentieth century?

Meet the Ivanka Voter by Anne Helen Petersen on Buzzfeed.

Anoosh on the EDL.

Why is Love Island so Tory?

How Don't Tell the Bride lost its spark

Take Me Out and the failures of feminism by Alan White.