See Bankers' bonus cap: negotiations stall | Business | The Guardian Maybe blinded by envy,eurocrats don't understand that salaries of many financial traders and securities sales people are merely meant to cover living costs-often champagne style-while the real money is earned in bonuses that can be a high multiple of salaries. For banks,that has the cost control advantage of keeping fixed wage costs low,while variable bonus wage costs can be slashed in periods of slack business.
More important,bonus arrangements recognise the reality that performances vary enormously in occupations that traditionally are paid heavily in commissions and bonuses eg many kinds of trading;commission sales in securities,insurance and property;investment banking deal making. The 80/20 rule applies to these,also known as Pareto's law in sociological statistics.This rule of thumb indicates that roughly 20% of sales people account for 80% of sales,20% of the traders account for 80% of trading profits etc. Within this 20%,the top performers,maybe a tenth of them,may account for,say,40% of sales or of trading profits. Given this variability in results,it simply is totally impractical to reward people heavily on salary,as a top trader or sales person could be four times as productive as the average and ten times as productive as the below average.
As a result,banks in Europe will be forced to radically restructure their trading operations when the bonuses are limited to salary levels. Many banks will not be able to trade efficiently and will withdraw from many trading activities in bonds,foreign currencies and financial derivatives. Some will outsource trading to US and Canadian subsidiaries,possibly creating an army of new traders on the graveyard shift starting at 4 to 5am to open at the same time as Europe. These traders would need to visit Europe frequently to keep in touch with clients.
Many banks will also outsource trading to independent trading houses,providing them with the capital to do the trades. It would be important that those trading houses have some of their own capital involved in the trades-"skin in the game" to ensure diligence in trades as opposed to gambling with bank money.
This could be an opportunity for traders in Dublin to set up major independent trading houses offering their services to Irish,UK and European banks. Irish billionaires with experience of financial trading,Dermot Desmond and JP McManus,could be interested.