This blog first appeared in Real Business
The question of City bonuses will always be contentious but the facts remain that economics show us that price restraints don’t work. A one-year bonus cap may not trigger a brain drain, but over a prolonged period people are likely to go where the money is, and the markets that can attract the talent will reap the benefits.
That may sound glib, but it also suggests other solutions are needed to the apparent stand-off between those in favour of big City bonuses and those against them.
The answer here may lie in the degree to which the City wants to restore faith and trust in what they do. Under its new management, Barclays has made it very clear that it wants to create a new approach more in keeping with the times to deliver service with respect and integrity. No doubt Anthony Jenkins will be walking a tightrope to deliver his vision without sacrificing the bank’s performance.
More broadly, when the UBS Libor fines were being handed out last year, 52% of bankers at operating board level or above felt that those responsible should go to gaol.
Yet the facts remain that the global economy has been going through one of the roughest periods in history. Many feel that those who helped cause the problem have continued to enjoy near unlimited rewards with no downside. Bob Diamond may have lost his job, but his luxury lifestyle and, more importantly, liberty are otherwise unaffected.
While the ability to take “risks” without actually risking anything may play well for bankers and, on a level, investors it does not play well for the reputation of business as a whole. Much of the reaction against extraordinary bonuses stems from that.
The long-term solution to the City bonus question may be more difficult than simply lobbying the lawmakers in Europe and enduring the annual round of media recriminations.
If the City execs really want to earn their bonuses maybe they will have to start engaging with their critics and trying to win the argument by telling a better story for business as a whole.