February is the festive season for London's trading community; another record year for bonuses has the City festooned in bright new ties, sharply cut suits, and swaying to the sound of champagne corks. "You all look pretty well on it", commented Eddie George, governor of the Bank of England, in his opening address at the Euromoney international bond conference. That's hardly surprising when a top earner can have a bonus as high as eight times his salary. But the champagne-induced hangovers of celebrating traders are nothing compared with the headaches high bonuses are causing their managers.
In recent years banks have chosen to gamble on the variable costs of employee earnings rather than pencil in large fixed outgoings. It is now evident that the bonus system has backfired, breeding flighty money-motivated traders with loyalties proportional only to the size of the bonuses on offer. "I would never underestimate the value of an individual to a company," says a top city headhunter, "but even I would say that they are demanding above kilter at the moment. The banks are shocked by the amount of cash being paid out and are looking round for other options.