An acquaintance of mine, a private banker, recently answered my innocuous ‘Nice to see you, how are things?’ query with a diatribe against his Swiss bosses, who had seen fit to reward him with a mere five-figure bonus for his efforts last year. Indeed, so incensed was this banker that he quoted the bonus figure and demanded advice on just how one was expected to survive on that.
He had no sense of his audience. There was I, a freelance journalist who last year launched a publishing business from which I have yet to draw a salary; next to me a career army officer, for whom a bonus means not being sent to Iraq; and a client of the banker’s Swiss bank who has watched in horror as the value of her portfolio diminished under his colleagues’ watch.
After an uncomfortable silence, I reasoned that his bonus was still worth more than the average UK wage, on which many families survive, and pointedly asked about the bailout of his employers by Swiss taxpayers.
But he still didn’t get it. Instead he muttered darkly about having no incentive to go into the office every day, and the injustice of the world. The first point is easy to refute, although – surprisingly – I held my tongue: the incentive to get up in the morning and go to work is called a salary.
Herein lies the problem. Vast swathes of investment bankers still believe an annual bonus is their right, irrespective of what damage their colleagues’ actions may have wreaked on the world’s financial markets. They shrug their shoulders, argue that it wasn’t their department and hold their hands out for their annual top-up. They have no concept of the outrage and bitterness people are feeling toward them.
To the public, any bonus awarded to an employee of a bank in receipt of government funds is akin to grand larceny. People believe the poor are bailing out the rich, and they are disgusted by it. They are angry because their hard-won savings earn close to zero interest, their homes are falling in value, their pension funds have shrunk and their jobs are being lost. The many are paying the price for the actions of the few.
It took death threats for AIG to recognize the public outrage over the stricken insurance company handing out $165 mn in bonuses to employees in its loss-making financial products division. When security firms recommend traveling in pairs and always parking in well-lit areas, those million-dollar bonuses do not seem quite so attractive.
Many of those bonuses have now been handed back, although a cynic might also view this as a defensive move against the threat of retroactive punitive taxes on bonuses paid by groups receiving taxpayer support.
Knee-jerk reaction tax legislation is unlikely to be the answer to the bonus question. Nor is it wise to be prescriptive, introducing one rule to fit all scenarios.
But investment banks have been run for the benefit of staff rather than shareholders for too long. Now that governments are the leading shareholders, it is time to redress that balance.
