The Bonus Culture Revisited: Legal and Ethical Dimensions of Economic Regulation

Abstract

This paper contributes to discussions on responses to the financial crisis of 2008, focusing on the regulation of the bonus culture in the financial sector. The paper offers a theoretical critique addressing legal and ethical issues involved in regulating bonuses. It dissects arguments put forward by orthodox economists and legal scholars on the supposedly unassailable nature of private contracting. The paper considers the case for caps on compensation and for the regulation of payment structures in the financial sector from a jurisprudential and ethical point of view. The paper begins by presenting recent initiatives at EU level (CEBS Guidelines) and proceeds to consider arguments for and against the regulation of bonuses, focusing on the philosophical underpinnings of the case for extending regulation. The paper contributes to the literature on the relationship between law and economics in the context of regulating the economy by offering some clarity on issues that are of current practical concern, but that also have a significant jurisprudential dimension.

Keywords: Financial Crisis, Bonus Culture, Compensation Regulation, CEBS Guidelines, EU Regulation, Law Reform, Credit Crunch, Crisis of 2008, Responses to Crisis

JEL Classification: A12, P26, P48