Last week, RBS has seen yet more disapprobation, for continuing to pay £600m in bonuses, having seen losses last year of £5.2bn. What's any of this financial incentivisation for, you might ask, if it doesn't make sod all difference whether you make money or lose it? Brussels agrees with you: the EU agreed this week to cap bonuses at the level of the salary. The City itself appeared to be unanimously against the idea. But is this pure self-interest? Or do they have even the germ of a point?
A number of people explained why traders get paid in bonuses. Paul Gardiner, who's now in asset management but worked at Goldman Sachs and, before that, Barings (there's a blast from the risk-desensitised past), said: "The highest salary I ever earned [as a trader] was £120,000 a year, when I was 27, and it remained at that level. In every year I worked, my total compensation was a multiple of my salary. It's a highly cyclical activity, so that's how it has to be. Someone doing the job I used to do is probably earning £300,000 now. That's madness. That's why they're all being laid off."
Belinda Lester, from the employment law firm CKFT, agreed: "If they have a bad year, it's very difficult to cut back salaries"; the second big plus from the bank's point of view is "if a significant part of your remuneration is a bonus, these contracts will make it very clear that bonus is only payable if you're not leaving. Let's say they're making redundancies, or they're giving notice, or if people want to hand in their notice, they forfeit their bonus. When they're making a payment in lieu of notice, you only have to worry about the salary, you don't have to worry about the bonus."
In a restaurant chain behind Bishopsgate (they've infected me with their elaborate discretion – it was a bloody Carluccio's, OK?), Tim Simons, who works in operations for a government-owned investment bank, ascribes it partly to traders' personalities. "I don't work for a bonus, I work because I like it when the traders are pleased with me." (It's difficult to describe his expression, it's sort of "ironic-craven"). "They're different people. The traders are getting salaries that are too high at the moment, because they're not allowed to get decent bonuses, and you can tell, because they're not hungry enough." This is all a relatively mechanistic argument; that they should get bonuses because it suits the fundamental nature of both the workers and the work. But it doesn't help if you think they just get paid too much, however they structure it. This is where Tim throws in the truly leftfield concept: the leftwing argument for a banker's salary. "When a bank makes money, it either pays to its employees; or it pays to its shareholders – the wealthy, I call them."
"But aren't the employees wealthy too?"
"No, traders aren't wealthy, they're just well-paid."
OK, park this for a second. Breathe. "Banks pay a lot of profit to employees, and this is a really good way to make sure they pay tax. Employees cannot avoid tax. Bonuses are PAYE. Imagine if you could tell Starbucks that they had to pay £10 an hour, and they had to give workers 40 hours a week. That tax problem would immediately go away."
Headhunter Richard Willis, in a coffee chain (it was a Costa) on Gresham Street, agreed with this: "Bankers' pay may seem excessively large, but I don't think paying a proportion of the money you make to staff is a bad thing. I would like to see the sales team in a manufacturing firm make more." He chipped in with the sound pragmatic point: Switzerland has had a de facto cap on bonuses, of between one and one-and-a-half times salary, for ages. They get round this in different ways, sometimes paying bigger salaries, sometimes giving a person two jobs, where one is paid as a salary, and the other one held in escrow until the end of the year … a little bit like a bonus. The point is not simply that people will always find ways of paying the market rate, and politicians are unlikely to have much influence over that market; also, it's perfectly possible to attach conditions to a salary, so that it operates exactly like a bonus, except in the respect of trying to get rid of someone. Capping the bonus, in other words, just effects a pretty minor shift in the power balance between the bank and the about-to-leave banker.
But if it's such a stupid idea, why has Brussels even gone for it? Gardiner says: "It's irrelevant to them, they don't have any serious banks. It's just a huge poke in the eye to us. What are Cameron and Osborne going to do about it, when they've been such prats?" Simons dates this right back to the 90s, when he first started at Merrill Lynch. "They [the EU] are rightly pissed off with us, too. We behave like absolute dickheads in Europe. It's all me, me, me. We shafted them; every time they tried to tighten their regulations, we'd pull our operations back over here."
I finished the day in Corney & Barrow, notorious haunt of the high-roller. I've been in there probably 20 times, always hated the braying. But on Friday there were only normal people, wearing normal clothes, talking normally.
These bastards. They've infected my central wiring. I don't know how.
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