Bonus payments are back at their pre-economic crash levels again

Record level was last seen in 2007-08 financial year

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Bonuses payments across businesses are practically back to their pre-economic crash peak, according to figures released today by the Office for National Statistics.

In cash terms, bonuses in 2014-15 financial year were just 0.1 per cent below the record level they reached in 2007-08 shortly before the crash.

Total bonuses in 2014-15 were £42.4 billion, a rise of 2.7 per cent on the previous year. £13.6 billion of this total was paid in the financial sector.

Bonuses are controversial because some behavioural economists believe they incentives short-term decision-making and a competitive target culture.

This has been linked to malpractice and instability in financial markets. There have also been suggestions that in the wider economy, short-termism in managers might be responsible for low business investment and thus low productivity growth.

The Institute of Directors, whose members tend to receive bonuses, welcomed the news, however.

“Today’s figures, which show both bonuses and base salaries continue to rise is good news, and another sign of improved corporate performance and strong business confidence,” said James Sproule, the group’s chief economist.

Bonuses for the financial sector specifically had not recovered to their pre-crisis peak however, with about £5bn to go.

Regulators this summer launched new rules governing bonuses in the banking sector that the Financial Conduct Authority said would “discourage irresponsible risk-taking and short-termism”.

The rules say bonuses can be clawed back after 10 years in the event of misconduct cases, and that senior managers cannot receive bonuses until seven years after their performance measurement period has ended.

Non-executive directors in financial companies have been banned from receiving bonuses and managers in taxpayer-supported firms cannot receive bonuses.

The fact that large parts of the financial sector receive taxpayer support could partly explain why financial bonuses are suppressed compared to pre-crisis levels.