Consider also why base pay is relatively low on Wall Street. It effectively ensures that employees stick around for at least a year until bonus time, thus slowing job hopping. I also suspect the delay in paying bonuses give firms an extra three months to assess whether trades incurred losses, with adjustments to bonuses made accordingly.
Regardless, bonuses are big because the financial industry makes a lot of money and distributes a large share of the income stream to talented traders who might well make a lot of money in some other field. There’s a lot of competition for skilled workers and any pay regimen that didn’t take account of this would put the industry at a disadvantage versus those that did.
This column was provided by Bloomberg News.