Everyone has an opinion on the bonus culture of the banking system - few have much time for bailed out banks paying millions to staff. Gina Dyer talks to politicians and employment experts on how the issue should be pragmatically viewed and the best way forward.

The furore over staff bonuses in the banking sector has reached fever pitch in recent weeks, with the banks, the government and the FSA under increased public scrutiny. But why should bankers be given a bonus at all? Aren’t they the ones responsible for the mess we’re in right now?

Speaking exclusively to Finance Week, Liberal Democrat Shadow Chancellor Vincent Cable argued: "I don't think there was any justification for paying bonuses this year. We need to get away from bonus culture altogether. There was certainly no justification for paying from tax payers' money a substantial amount of cash to employees whose banks have failed and are making substantial losses".

News that banks such as RBS, which had received huge tax payer bailouts, were planning to spend millions in bonuses for their staff this year was met by public outrage, prompting Gordon Brown to warn that there should be “no rewards for failure”. With public pressure mounting, the government has ordered several hasty measures to garner public support, including drastically cutting back the level of staff bonuses at RBS and launching a Treasury investigation into how financial institutions in the UK are managed.

Critics maintain that the problem can only get worse while banks continue to operate within a culture of short term incentivisation, and that a radical overhaul of the performance rewards structure needs to take place before the sector, and indeed the country, can recover.

Bonus culture

“The short term bonus culture in banks has got to end”, Gordon Brown told journalists this month. The speech was intended as part of a visible government crackdown on banks but unfortunately appeared light on the specifics of how this would be achieved. Brown did suggest that the FSA should have powers to penalise banks that offer staff rewards based on short term deals as opposed to long term performance, as well as arguing, “It should never be a one-way bet. If you fail, there should be a clawback that is possible within a bonus system”.

“There has been a lot of short termism in the sector," says Andrew Pullman of HR specialists People Risk Solutions, who has over 20 years experience managing City salaries and bonus reviews. “It’s a very high risk/high reward environment. Where there’s high risk, people can lose their jobs overnight. It’s tough, but people are rewarded for high performance. Recently, however, it has gone out of kilter. There’s too much money being given to people who have failed and that needs to be sorted out”.