Guest comment: The 80:20 rule and all that

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Shaun Springer, chief executive of search firm Napier Scott, on why speculating about bonuses is a murky business.

Rumours abound and the City is awash with more speculation than a trading pit.

Trading losses at one American bank are countered with record bonus pool announcements by another and illustrate the potential gulf between the haves and have nots.

Banks have been announcing record quarters throughout the year and expectations are feverish. Available properties in SW London above 1m are about as scarce as a clean river in China as the City boys and girls line up their new homes in anticipation of seven figure bonuses.

So is it all hype? Well, yes and no. If you break down the figures of those in the front office who are likely to enjoy these sort of awards then it's unlikely that much more than a thousand individuals employed by banks will receive these sort of commissions - much the same as last year.

And where do these 1,000 work? Much the same places as last year - albeit after some musical chairs. Ditto as to how the bonus pool will be divided and how many will express their disappointment (though not necessarily be disappointed - City folk being as pragmatic as they are ambitious).

The fact is that banks have long since realised the value of the 80/20 rule, and like all good banks have manipulated that rule and re-priced up to 85/15. Effectively this means that whilst bonus pools are higher, the split between the stars and the also-rans is wider. If in 2005 one had 10 to divvy up between 10 staff, it's likely that two of them received 4, two of them 0.50, four of them 25p and the other two were told their bonus was that they still had a job in January.

The other part of the bonus equation is dependant upon who employs you. The polarisation between the big payers and the rest of the market has further widened. The cracks between tier-one pay and that of tier-two firms first appeared in the mid 90s. By the turn of the millennium, this had become a sizeable gap. But with the big payers attracting the best staff who should be turning in the largest profits, the gap has become a gulf over the past few years.

Year on year the profit returns between the tiers has widened, not least because they have attracted the rain-makers away from those houses that cannot afford to match the bonuses of the majors. It's as much a virtuous circle as it is a vicious spiral.

Now, all this is generalisation, and generalisations are generally wrong (30 per cent is 'higher' and 30 per cent is 'lower' so only 40 per cent meet the generalisation). Mix it with buoyed up expectations, headhunters bidding-up the market and journalists' speculations and you have the murkiest of soups.

Imbibe it at your peril.

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