Stephen Foley: Why we need bonus rules

US Outlook: Only on Wall Street could the phrase "guaranteed bonus" not be an oxymoron, and there is something so outrageous about the notion of pre-agreeing multi-year bonus packages that it has become a lightning rod for public over finance industry pay.

But we're getting distracted again. Lloyd Blankfein, the chief executive of Goldman Sachs, in his speech in Frankfurt this week, promised to ban the practice. Timothy Geithner, in a town hall meeting on Thursday, name-checked the guaranteed bonus as a particularly egregious problem.

Except that the real issue with Wall Street remuneration is not the guaranteed bonus, it is the unguaranteed bonus, the one that employees feel they have to shoot high and take big bets in order to achieve. Happily, Mr Blankfein had a little to say on this, too, promising to claw back bonuses in future years if initially promising bets went sour. And he promises more equity-based compensation for high earners, who might therefore be less inclined to bet the firm.

These limited proposals should not be enough to ward off tough regulation. The increasingly impressive Mr Geithner said Wall Street could not be trusted to govern itself, since the need to compete for staff tends to drive Wall Street to create dangerous pay structures. Only regulatory strictures will do.