Bonus fables from the Real World
Banking is not the only industry where people receive bonuses.
Bonuses are also offered in other professions. And in other professions there is no obligation to defer bonuses over multiple years, to claw them back, to base them on risk adjusted measures of performance, or to subject them to punitive forms of taxation.
Then again, bonuses in other industries tend to be a lot lower.
Bonuses in law firms
Lawyers' bonus arrangements are interesting.
Andrew Roberts at legal search firm SS Legal, says the average solicitor at a magic circle firm can expect a small bonus equivalent to just 10-15% of his/her salary. Just a few years ago, 40% was the norm.
The situation is more complex for equity partners at law firms. In order to become an equity partner, senior lawyers have to stump up a significant amount of their own cash (eg. 250k). Having done so, they are able to share in the profits of the firm.
For example, a firm that makes a profit of 10m and has 10 equity partners will pay each partner 1m for the previous year. Roberts says a small proportion of this (eg. 8k a month) will be paid in a monthly 'drawdown'; the remaining 904k will probably be paid on a quarterly basis over the following year.
In the event that the law firm makes a loss or needs more equity, equity partners may be obliged to pay money back, or to stump up additional cash. This happened last year at Clifford Chance: equity partners were asked to invest a further 150k.
If equity partners fail, or are unable to respond to a cash call, the law firm is able to start bankruptcy proceedings against them. This also happened last year, in the case of Stephen York.
Bonuses in strategy consulting firms
Strategy consultants don't get big bonuses either (as a proportion of salary). According to headhunters in the sector, McKinsey will typically pay a 70k base salary to an 'associate' (someone with an MBA and five years' pre-business school experience), plus a 20-25% bonus.
A 'mid-range' partner could allegedly expect a salary of 400k, plus a 400k bonus. A high proportion of bonuses is apparently unrestricted cash.
Like partners in law firms, senior partners at strategy consulting firms are usually equity partners with their own capital on the line.
Bonuses in the oil and gas sector
Paul Thomas, a headhunter at oil and gas search firm SPS International, says directors working in oil and gas firms typically receive bonuses equivalent to 100-300% of their salaries. However, engineers on 50-60k, or project managers on 100k will be more likely to receive bonuses equivalent to 20% of their salaries.
"Bonuses are based on a number of things," says Thomas. "They include health and safety and company profits.
"I have never been able to work out how the health and safety element is calculated," he adds.
Bonuses in the public sector
Public sector employees also receive bonuses, but they are not large.
The Telegraph reported in January that the average senior civil servant in the Cabinet Office received a bonus of 9.3k last year.
Perversely, whilst preaching bonus restrictions to banks, the FSA is freezing salaries and increasing bonuses for its own staff. However, its bonuses are not large: in 2009 the average was 8k.
