Deconstructing the emotive language being used to justify a new tax on bonuses

It may happen. After last year's 'one-off', there may yet be some form of new tax on bonuses this year. The Lib Dems are for it, although the Tories are not quite as resolute.

The putative new tax is being discussed at the Lib Dem Conference, where bonuses are being/have been referred to in the following terms.

1) 'Ludicrously sky-high'

Yesterday, Nick Clegg said the coalition would not stand by if bankers decided to pay themselves "ludicrously sky-high bonuses".

However, both our research and that of the CEBR suggests that while a minority of people working in the City receive six figure bonuses, and some receive seven figures, the majority receive far less. Last year, the mean front office bonus was 254k; the median was 50k. According to the CEBR, the mean across the City is 20k. Moreover, what may appear to be a high headline figure for an individual is now deferred over several years and subject to changes in the banks' share price.

2) 'Unjustified'

Nick Clegg also said: "If banks pay themselves unjustified bonuses we reserve the right to take very serious action."

However, it is not clear what an 'unjustified bonus' would constitute. Most banks have already cut their compensation ratios, from 50% to around 40%. Equally, given the slowdown and yesterday's profit warning from Deutsche, banks will be very circumspect about who they pay large bonuses to this year.

Anyone receiving a big payout will therefore probably do so because a) they've generated a lot of business, b) they're a key person whom the bank can't afford to lose. Both would be considered sound justifications by some people.

3) 'Unacceptable'

Vince Cable is speaking at the Lib Dem Conference today. Yesterday, there were rumours that he would announce a new bonus clampdown during his speech.

According to the Telegraph, Cable will say that "If there are unacceptable bonuses, the Government has an obligation to intervene. [There must be] a deterrent to banks which are preparing to undertake unacceptable bonuses."

What is an 'unacceptable bonus'? The average salary in the UK is less than 25k. A recent survey suggested that the average Briton thinks bankers should earn 58k in total compensation. Does this make a 50k bonus unacceptable?

'Acceptable' pay will be a subjective measure, dependent upon how much the individual making the decision is earning him or herself, the perceived value of the work the person being paid does, and the perceived effort that the person being paid puts in. Is a 100k pay package acceptable for a first year analyst who works until 2am every night, and every weekend? Who is the best judge of unacceptability? Vince Cable would possibly like to put himself forward.