Several newspapers responded yesterday to recent statistics from the Office for National Statistics (ONS) showing that bankers’ bonuses were unchanged since the last financial year. The Guardian and the Telegraph reported a fresh ‘row’ developing in response to the static figures.
ONS figures show that, in the 2010/11 financial year, bonuses among those involved in “Finance and Insurance Activities” totalled £14 billion, compared to £14 billion in 2009/10, £12 billion in 2008/9 and £19 billion in 2007/8 (approximate figures).
So does this mean that bonuses are genuinely unchanged since last year?
The caveat of the issue is that the ONS figures only show that bonuses in the Financial and Insurance sector have stayed the same in nominal terms – i.e. that the actual payment to individuals in the last financial year totalled approximately the same as the year before.
However, many other statistical measures, including the measurement of wages, are calculated in real terms. In other words, they take into account not only the increase in payments but also increases relative to the rate of inflation.
The ONS confirmed to Full Fact that it does not, at present, calculate bonus payments in real terms. However, several measures of inflation are often marginally positive, so any case involving no change or small increases in nominal cash terms will often hide real terms decreases – meaning that, while the payments are the same, they pay for less.
To reach an assesment of how inflation would affect the figures, Full Fact conducted its own calculations based on GDP deflators over the last four financial years. These broadly show GDP inflation of just under three per cent for each recent financial year, with the exception of the 2009/10 when it was marginally lower at under two per cent (an effect of the financial crisis).
The results are shown in the graph below. When GDP inflation is taken into account, the picture is that bankers’ bonuses have in fact fallen slightly in real terms by around 2.8 per cent. In effect, the £14 billion bonus payouts last year were only worth £13.6 billion this year. The figures are approximate and based on Full Fact’s interpretation, on which we are consulting with the ONS.
The bigger picture is that bonuses have been increasing in both real and nominal terms since the 2002/3 financial year. In 2007/8 they rose slightly on both terms, before sharp drops in 2008/9 and sharp rises the following year.
The newspapers’ claims about a lack of change are rightly based on ONS figures, but the figures themselves hide a potentially revealing fact about the direction in which total bonuses are heading when inflation is taken to account. But looking at the ONS figures, the slight fall in real terms bonuses overall in the financial sector will still be smaller than the reduction seen in bonuses for the rest of the economy.
Nevertheless, it serves as a reminder to see changes in any type of payment in real terms – relative to the overall economy – rather than simply at face value.