Karl Craig-West Business blog writer, website builder, public speaker and world record holder

31Jan/120

Not all bank bonuses are bad

Since the chief of RBS, Stephen Hester, has said no to his £900,000 bonus I think it's time to make the case that not all bankers bonuses are bad.

Hester is a unique case, he is head of a bank that is largely owned by the UK taxpayer. However, he's done well in his role to stabilise the bank  and make it more secure and less prone to excessive/risky lending and casino-style investment tactics.

However, we've since learned that one of the traders at RBS is in line to receive a bonus of around £4m. And many folks will wonder what he (or she) did to warrant that kind of pay packet.

The fact of the matter is that most bank traders are paid on performance, they get a basic salary and then a bonus depending on how much profit they've made for the bank. In all honesty, most traders in banks earn less than £100,000 a year (which for some readers will still seem like too much).

However, if the high flying traders bring in millions of pounds worth of income to the bank, the profits of which are then passed to shareholders, is it so bad if they get a hefty bonus?

I'm not sure it is, and here's why:

You see, most traders are salespeople. They go out on behalf of the bank and peddle financial products to other financial and investment institutions.

In many ways they're very similar to almost any salesperson. If they don't sell they don't earn.

I used to work for a well known home improvements company. I was given a small basic salary and then very generous commissions on what I sold. The scope for earning a considerable income was definitely there. But if I didn't sell I didn't earn.

As it turns out I didn't sell and didn't earn and didn't last long in the job (I since realise that I was a little too honest to close the deal on the day).

So, if a bank trader brings fifteen million pounds of profit into the bank, is it unreasonable to give him/her a bonus of over a million? I don't think so, and I'm not sure the shareholders would be all that bothered either.

If owned a business and my top salesman brought in millions of pounds worth of sales and profits I'd not be shy in giving her a hefty bonus.

So, if someone is bringing in the profits for a business then bonuses aren't necessarily a bad thing.

Disagree? Feel free to tell me why by making a comment below:

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