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Strong business performance drives higher bonuses - IoD

27 Aug 2015

IoD welcomes news that both wages and bonuses are increasing, and suggests lower bonuses in the financial sector are a sign of post-crisis culture shift

Commenting on figures released today (ONS) which showed the total value of bonuses paid to employees in 2014/15 increased by 2.7 per cent to a total of £42.4 billion, and the amount paid by the financial and insurance industries fell by 9.7 per cent to a total of £13.6 billion, James Sproule, Chief Economist at the Institute of Directors said:

“Bonuses are a fundamental feature of a flexible labour market and make up a key component of the remuneration mix. They allow businesses to reward staff for their achievements over a set period of time and are often directly linked to an individual’s or the company’s performance. This means when times are good, companies can share profits with staff without increasing their labour costs to an unsustainable level. Today’s figures, which show both bonuses and base salaries continue to rise is good news, and another sign of improved corporate performance and strong business confidence.

“In the financial and insurance industries, the fact that bonuses now make up a significantly smaller chunk of take-home pay suggests steps have been taken since the financial crisis to rein in excess. Under pressure from politicians, the public and regulators, banks now realise that the culture of unjustifiably high cash bonuses as a reward for short-term performance is over. This system warped decision making, encouraged dangerously short-term thinking and, in the case of the Libor and Forex-rigging scandals, rewarded criminal behaviour.

“Nevertheless, we must caution against moving too far in the opposite direction. While bonuses in the finance sector have fallen by around 10 per cent, wages are growing at one of the fastest rates of any industry. This could mean firms are just shifting pay towards base salaries, rather than making sure bonuses reward employees who have delivered value for the company and hit stretching and long-term performance targets.”

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