Watch CBSN Live

When is a Bonus Not a Reward?

We know the government thinks bonuses are bad -- it's even introducing legislation to block them. But the reason they have become a dirty word is because they are being handed out as standard instead of as a reward for exceptional performance.

Days before ministers announced the new law to curb City bonuses, it was revealed the Ministry of Defence gave out £47m in bonus payments during the previous seven months.

Spread over 50,000 recipients, that is less than £1,000 a head. But if the bonuses are awarded that widely, then the majority of the MoD's 85,000 bureaucrats are on the bonus list. And as £47m so far this year follows £53m in 2008 and is the same as the average paid over the past six years, these are not extraordinary payments but regular remuneration.

These are not payments to the best MoD staff but to most employers including, by definition, the below-average civil servants.

Rather than payments for outperforming colleagues these are, at best, rewards for beating targets agreed by other civil servants.

Universal bonuses are now common with a broad range of employers, including banks that regularly reward counter staff and back-office workers simply for doing their ordinary job.

The details of these across-the-board bonuses emerge when newspapers see a scandal in a state-rescued bank making payments above basic salaries or contrast of MoD administrators receiving bonuses when frontline soldiers are unrewarded for outstanding performance.

These payments may not be consolidated into basic levels for calculating future increases and are not pensionable, but they are pay in every other sense: they are taxed, expected and often negotiated as if part of the basic package.

If an estate agency rewards a negotiator for completing a high volume of sales, that is commission, not a bonus. If a bank teller or civil servant receives an annual lump-sum, that is pay, not bonus.

These might have been labeled as bonuses to make junior staff feel as though they were in the same league as their bosses or City dealers, but now the term is such a dirty word they may well be renamed, and calling them pay would be the best way to clean up this practice.

The new law outlawing bonuses that threaten the stability of a financial firm will come to nothing. It was not Sir Fred Goodwin's £16m pension that brought down Royal Bank of Scotland but its foolish lending and investments. Even collectively, bonuses make little dent on a balance sheet: the problem is the reckless decisions that bonuses encourage.

But it is time to cut back bonuses to those who make an exceptional contribution, not to hand them round like confetti. The idea of the "annual bonus" for the masses or the "guaranteed bonus" for recruits should be quashed, whether in City dealing rooms or business boardrooms.

(Photo: Chris Isherwood, CC2.0)

View CBS News In
CBS News App Open
Chrome Safari Continue