How Do We Solve the 'Banker Bonus Problem'?
How Do We Solve the 'Banker Bonus Problem'?Reuters

The recent European Union clampdown on bankers' bonuses has serious implications for the UK banking industry, with the likes of HSBC and Goldman Sachs simply finding ways to circumvent the cap entirely.

Even the Royal Bank of Scotland (RBS), which recently announced an £8.2bn (€10bn, $13.7bn) loss for 2013, is still planning to reward its senior executives with over half a billion pounds worth of bonuses.

This comes after a year of mis-selling scandals, market manipulation and nationwide IT failures.

So how do we solve 'the bonus problem'?

Despite the call for further political scrutiny and widespread outrage from the public, big bonuses are not going to go away and the best way to address this issue is not through sanctions and regulations, but through managing bonuses against a clear plan which can be referred back to and against which employees can be measured.

Damaging scandals like mis-selling or excessive bonuses can be avoided if managers, and even the public, have a full view over the commission structure in an organisation.

If the government and the public have clear line of sight on how and why these rewards are given, banks can begin to combat the constant public backlash brought upon them in relation to bonuses.

Bonuses and commissions, particularly in high-profile fields like banking, need to be clearly explained, easily tracked in real time, and matched against real outcomes.

If banks can justify these large bonuses against targets that have been met and have benefitted the company, this helps to combat the public's opinion.

Using complicated, error-prone systems such as spreadsheets to calculate commissions can create real problems and encourage bad behaviour. Lack of clear processes allow rogue employees to be bullish.

These situations are all too common, they deliver short-term results for the company and the individuals responsible for selling, but have significant repercussions.

All banks want their salespeople to be successful, but this success should not come at the cost of the consumer, company reputation or damage the bottom line.

Thankfully, there are ways to do this - solving the 'bonus problem'.

Here are a few things for the banks to consider when it comes to setting their bonuses:

1. Be transparent

2. Keep bonus plans simple

3. Tailor incentives

4. Track teams

5. Keep customers happy and the business successful

There is always going to be a highly emotional reaction to bonuses, but the more transparency you can provide, the more understanding the response will be, especially when the public is involved the way it is with RBS.

It may not solve all of the banking industry's problems, but control and transparency are absolutely paramount to justifying such seemingly arbitrary rewards.

Christopher W Cabrera is the Founder and CEO of Xactly, a leader in sales performance management software, and an expert in bonuses and compensation.

Cabrera has recently released a book, 'Game The Plan', which shows companies how to use real-life data to create highly customized incentive strategies that systematically inspire peak performance.