Bonus culture

Bankers' bonuses are traditionally paid or awarded to some workers in the finance industry at the end of the bank's financial year. They are intended to reward employee behavior during that year that has increased the profits of the bank or some relevant part of its business, as shown by the annual accounts. The bonus culture is usually associated with the investment banking divisions of banks. Although calculated in respect of past service, payment of all or part of a bonus may be deferred and made contingent on subsequent events, such as future profitability or continuing employment; this is especially appropriate if the business done is of a kind which cannot be reliably valued at the end of a year.

Individual bonuses can range from a few thousand to tens of millions of dollars, pounds or euros, payable in cash or less obvious forms including pension funds, shares, options, profit-shares and assets derived from the bank's transactions. A variable performance-related bonus is often the substantial part of a senior banker's contractual remuneration; thus they effectively work for a share in the net profits (but not net losses) for which they are responsible, with a relatively small fixed salary. Such bonuses are payable under contract, rather than at discretion; nevertheless the amount of a contractual bonus usually depends on some subjective assessment of the factors required to be taken into account. Individual bonus awards may be calculated by reference to complex formulae combining personal, departmental, corporate, group or share price performances against targets; additional adjustments may be made for factors such as "guaranteed bonuses" often agreed for the early stages of a new employment or venture, loyalty bonuses, or "smoothing" in years where an individual outperforms the bank as a whole. In case of disagreement, especially on resignation, the proper basis of contractual bonus assessment, even if to some extent discretionary, can be negotiated or litigated.

The basis of any individual's bonus may vary from complete discretion of the bank's board or managers to a firm contractual entitlement; specific awards will depend on their employment contract, bonus scheme, and negotiations, as well as the bank's performance and the individual's. As well as individual contractual bonus arrangements, banks often have one or more discretionary bonus schemes to provide motivational structures to more junior staff without giving any entitlements. Of course, bonus policy is only one part of a bank's total remuneration and motivation structure which may include pay scales, promotions and reviews, share and option schemes, pensions, expenses, and benefits in kind.

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