Sir, The Prime Minister’s and Lord Turner of Ecchinswell’s drive to curb or eliminate bonuses paid to City workers, on the ground that such bonuses fuel a culture of greed, is based on false premises (“Spot checks to curb ‘greedy’ City bonuses”, Sept 22). Gordon Brown’s attempt to curtail bonuses will cause irreparable damage.

Bonuses are designed to give City firms flexibility in rewarding their employees for positive performances. When the firm or one's department does not perform as well, bonuses clearly decline.

If the Prime Minister was serious about curbing excesses in the City, he would move to eliminate all base salaries and encourage a move towards total performance-based remuneration. Base salaries insulate City workers in hard times, but bonuses reward them in positive times; the current situation is a one-way street. In the balanced scenario, if 100 per cent of one's pay were performance based, bankers and traders would have to be more risk averse to ensure that they can put food on the table. The individual gain would be greater, but also the individual losses. A balanced remuneration equation would ensue, with an equilibrium between compensation, risk and profit/loss.

Aron Ping d’Souza

Editor of the journals Jurisprudence and Applied Economy

Sir, There is one matter that is being overlooked, namely, the importance of self-regulation within the framework of the law. Ultimately, it is up to the directors and those who run the financial companies to behave in a manner that maintains proper standards based on sound principles and, dare one say it, moral rectitude.

It is not by any means a matter exclusively for the Financial Services Authority. We need to see that the City itself throws out the bad apples and blackballs those that transgress, stopping credit lines as required.

Parliament will not solve the problem and may exacerbate it by generating costly bureaucracy that will not fill the moral void here or abroad. Without a sense of fiduciary duty and self-regulating principles along the lines of the Quakers in the 19th century, no amount of legislation in itself will compensate for the greed and incompetence we have witnessed.

The same principles must apply in all professions whether it is finance, law, medicine, accountancy, or whatever — ultimately those who know best how to run the profession must exercise moral responsibility in weeding out bad practices and bad people.

Bill Cash, MP

London SW1

Sir, The current turmoil demonstrates the negative impact of incentive schemes that reward short-term risk-taking by staff, without taking into account the long-term consequences of toxic trades. Frameworks that link bonuses to specific, measurable criteria that can be tracked over the lifetime of the transaction need to be put in place, if we want to prevent future meltdowns. It is time for banks to implement the systems they need, not just to help to manage financial and regulatory risk, but also to get the visibility into how incentives drive staff behaviour. Only when banks understand this better can they run their businesses better.

Bill Schuh

London WC2

Sir, While MEPs are right to call for greater transparency and openness from hedge funds and private equity (report, Sept 22), the financial services sector must not regard the Parliament’s opinion as an attack on them. It is becoming clear that the crisis started and developed in the most heavily “regulated” parts of the industry.

When socialist MEPs first presented their report, they demanded a massively heavy one-size-fits-all knee-jerk reaction to the financial crisis. However, the report we expect to adopt today is a significant departure from that originally proposed. We need smart regulation, not overregulation.

John Purvis, MEP (conservative)

Vice-President of the European Parliament’s Economic and Financial Affairs Committee

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