Bonuses from UK employers beat pre-crisis peak

Posted on September 15, 2016

Commuters after work,City of London,England...F8PGR5 Commuters after work,City of London,England©Ianni Dimitrov/Alamy

The average bonus per employee in the finance and insurance industry was £13,400

Britain’s employers handed workers £44.3bn in bonuses in the last financial year, surpassing the sum they awarded in the boom year of 2007/8 before the economy crashed.

The official figures show the level of bonus payments has finally recovered in cash terms after plunging by a fifth during the financial crisis.

    However, bonuses are still 12 per cent lower after adjusting for inflation and now account for 6 per cent of total pay, below the 2007/8 peak of 7.1 per cent.

    “There is little appetite for a return to the pre-crisis bonus culture that appeared to characterise the excesses of the period, so we should not expect too many tears to be shed over the fact that total bonus payments remain well down on their peak in real terms,” said Matthew Whittaker, chief economist at the Resolution Foundation think-tank.

    The type of workers who receive bonuses has also changed markedly during the past eight years. People who work in finance and insurance now receive just 31 per cent of the total bonus pool, down from a peak of 47 per cent in 2006. “Other industries, particularly among professional and high-tech business services, have been the biggest drivers of growth since 2008,” said Nick Palmer, statistician at the Office for National Statistics.

    Bonuses in the finance and insurance industry were up just 2.2 per cent in the past year, while bonuses in the rest of the economy rose 5.4 per cent. Bonuses for workers in the information and communication industry surged 9 per cent.

    The muted growth in bankers’ bonuses reflects both tougher conditions and tighter regulation in the finance industry since the crisis. The most senior managers of banks can now have their bonuses withheld for as long as a decade under proposals made last year. The UK also eventually dropped a legal challenge against EU rules to impose a cap on bonuses, and has now implemented them.

    The rules cap variable pay of bank staff identified as having a material impact on their institution’s risk profile at 100 per cent of fixed pay, unless shareholders approve lifting the threshold to 200 per cent.

    Fears over impact of cap on bankers’ bonuses ‘unfounded’

    Bank of England, London.

    EBA report says bonus cap has led to a very small increase in fixed costs in some institutions

    Nonetheless, bankers still receive by far the biggest bonuses overall. The average bonus per employee in the finance and insurance industry was £13,400, while the average in the private sector as a whole was £1,800.

    The gradual recovery in bonuses comes in spite of evidence that many employees think they are unfair and divisive. The UK has the second-least meritocratic bonus system in the world, according to a global poll of 6,500 financial decision makers published this week by the Chartered Institute of Management Accountants.

    More than a third of UK finance professionals said bonuses for top earners — including salespeople, fund managers and board members — were undeserved. Almost two-thirds said unjustified bonuses caused resentment among their colleagues.

    Some employers appear to have come to the same conclusion. Neil Woodford, one of Britain’s best-known investors, recently eliminated bonuses for the 35 employees at Woodford Investment Management, the fund boutique he founded in 2014 after leaving Invesco Perpetual.

    Craig Newman, chief executive of the group, which has £14.3bn under management, told the Financial Times that bonuses were “largely ineffective in influencing the right behaviours”.

    Despite this, FT analysis shows that the chief executives of the world’s largest asset management companies received bonuses that were on average 15 times larger than their salaries last year.

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