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Bonus curbs

What are bonus curbs?


Bonus curbs are a cap on the amount of variable salary a worker may receive from the employer.

Wider definition

  • Is a profit windfall tax on companies a form of bonus curb?

Why do some people hate bonuses?

A person on a fixed salary of 2 million is not hated, but a person with a 500k salary and bonus of 1m is hated. Why should this be the case.

Do people see a bonus as unearned? Or is it the high figure that makes people jealous? Do people think about the fact there may be bad years as well as good ones? If so the bonus should be looked at as how much over a period of years, not just over 1 year.

It should also be noted that those with high bonuses are those who pay more tax.

Benefits of bonuses

In principle bonuses work across any industry. Compensation for most sales related job involves a bonus. If I expect someone to earn a 50,000 package, do I pay them 50,000? No, I pay them 20,000 and a performance related bonus. If they perform well, they could very well earn more than 50,000. Without bonuses the only way for a firm to handle the ups and downs of the market would be to hire an fire.

Bonuses are a merit based pay system, it doesn't discriminate bases on race, gender etc.

Firms don't offer Bonuses on a whim. 

A companies income may be variable, and variable pay(bonuses) may help it survive on the downturns. Ensuring staff still have jobs.
The market for salespeople quite often includes bonuses, if a firm does not offer a bonus, they might not be able to hire staff.
Bonuses can incentivise staff to be innovative and work harder.

Futility of messing with bonuses

Fixed pay + (Variable pay * chance of getting that pay) = Expected overall pay

When most people choose which job to take, especially salespeople, they look at the overall remuneration package.
If regulators say that variable pay can be clawed back if the benefits of the sales do not work out, then the "chance of getting variable pay" drops. Potential and current staff will expect the same "Expected overall pay", to do this fixed pay will have to be raised from what the firm wanted to pay (with good reason).
Overall risks to the firm will increase, overall pay will also increase and potentially less deals will be done.

Removal of bonuses based on unknowable inforamtion at the time of the iniatial work, undermines the whole bonus system.