What about the pay consultants?

Much has been written these past few days on the size of bank bonuses. The big complaint, understandably, is that in the loss-making banks these can be perceived as rewards for failure.

Most of the criticism on bonus policy is being directed at the banks. These policies, however, are drawn up not by the banks but by their pay consultants who have been keeping their heads down in the past few weeks.

I would welcome some justification for some of these policies from those who advise their corporate clients on incentive pay. But I don't expect to see it.

The relationship between work and pay is complex. Pay does matter but it matters most at the point of negotiation and when there is a perception of injustice. Pay is used as a lure to recruit people but once they are on board it is unlikely to become a source of unrest unless they perceive they are being unfairly treated (something I explored in this column).

In the most senior ranks companies have lived with the reality that sometimes they will be paying for failure for too long.

I have yet to see a convincing argument to support the proliferation of the bonus culture in banks. As for guaranteeing bonuses, that is a nonsense as the only justification for the bonus is that it can be regarded as variable pay, offering some protection for the paying institution if markets take a tumble.

Of course, if employees have done all that is expected of them and more - which is the case for thousands of hard working people in the Royal Bank of Scotland and HBOS - it is natural that many will feel aggrieved to be losing their bonuses as a result of poor decisions at the top of the organisation.

On the other hand they may reflect that their projected bonuses derived from unrealistically high expectations over many years when times appeared good (but in fact, better than reality in a bubble economy). Those that retain their jobs must know they need to take the rough with the smooth.

A bonus must be just that - a sum of money that is not guaranteed and which should not be taken in to account in financial planning. The danger is that some people will have included expected bonuses when stretching their finances to meet a demanding mortgage, for example. They will suffer. But perhaps they should. Overspending on "hope money" is a harsh lesson for anyone, but one that should ensure greater prudence in future. Everyone must learn to live well within their means. That way they should live well.

Rotten to the core?

For two days now I have been reading of the damaging speculation that has hit the UK's high street banks such as HBOS in midweek. The bank saw 17 per cent knocked off its share price due to rumour mongering explicitly designed to drive down the share price so that traders shorting the stocks could make a killing.

One hedge fund is believed to have made £100m on such trades in a single day. Such market manipulation is illegal but will anyone be convicted down the line? I very much doubt it.

This kind of trade today is international. What hope does the Financial Services Authority have of collaring a so-called "rogue trader" in Singapore, where some of the manipulation is alleged to have taken place? Precious little is the answer, but you are unlikely to hear that from anyone among the regulators.

Some have described this kind of manipulation as a "modern day bank robbery" but you don't get treated like Ronnie Biggs when you wear sharp suits and work in a City trading room.

Indeed there are some former City crooks - such as Ernest Saunders - who have never accepted that what they did was in any way illegal. Saunders, you may remember, made medical history when he recovered completely from the debilitating effects of pre-senile dementia, a condition that secured his early release from prison. Not since the New Testament has anyone made such a Lazarus-like recovery.

Such is the City's willingness to look after its own that Saunders was able to find consulting work, once his mind had recovered its former sharpness.

So don't be fooled by the "bank robber" headlines. They are designed to shock the ordinary mortals who have building society deposits, not to put the slightest fear in to the hedge fund manipulators.

While we might talk of rogue traders, as if these people are in a minority, we should accept that there has always been something roguish about a system that allows its market to be run as a race-course betting operation.

Yes, something needs to be done. But that's what is always said after every financial crisis and every downturn when the worms are shaken out of the rotten apples. But the gamblers, the manipulators and the rogues will always find a way to beat the system.

The reality is that these people are ever present and in the good times they are tolerated, indeed they are highly rewarded. If you don't believe me, just read the Alex cartoon every day in the Daily Telegraph which is never short of material for its cynical representation of the City. The point is that we laugh with Alex. Only today it doesn't seem so funny.