Banks rethink incentives as the bonus pool dries up

Banks are announcing their annual bonuses this year against the backdrop of a recession and substantial government bail-outs for some of the largest institutions. The public’s opinion of bankers is at its lowest, while feelings of mistrust and allegations of greed abound. This is compounded by press headlines berating “rewards for failure”.

In most banks, reward is based on a relatively modest basic salary with the bulk of the compensation being paid through an annual bonus. Staff who generate the largest proportion of gross revenue usually receive the biggest rewards. It has been said that this incentive structure, prompting bankers to take greater short-term risks, has contributed significantly to the seriousness of the credit bubble.