Bankers' bonuses have burst out from the business pages of UK newspapers, and are headline news. The bonus round exposes a deep and raw nerve in British society, says Tony Manwaring, chief executive of the UK-based business-led non-profit Tomorrow's Company that works towards creating synergies between businesses, societies and environmental sustainability

Tony Manwaring is chief executive of the UK-based business-led non-profit Tomorrow's Company, a 'think and do tank' that works towards creating synergies between businesses, socities and environmental sustainability.

Bankers' bonuses have burst out from the business pages of UK newspapers, and are headline news. The bonus round exposes a deep and raw nerve in British society.

The Royal Bank of Scotland brings these issues into dramatic relief.  It is 83-per cent owned by British tax payers, as a result of a £20-billion bailout, one of a number of 'rescues' to prevent the collapse of the UK banking system.  Last year, Stephen Hester, the bank's chief executive was 'shamed' to quote one tabloid, the Daily Mirror, into giving up a bonus of £1.6 million.

This year it is reported that he may receive a bonus of £3 million.The Daily Mirror has returned to the fray: ''we say they should give up their obscene bonuses and start living in the real world – like the rest of us''. 

The possible £3 million bonus is compared with the record £2.8 million fine of RBS for poor service to customers. Unions speak of the government's 'unconditional surrender', Labour MPs say that such a bonus can't be justified and Prime Minister David Cameron says RBS should be a 'back marker' in terms of this bonus round.

RBS and Hester are not alone in attracting such criticism. The total bonus pot is reported to be £1 billion this bonus round (estimates vary of the size of the 'pot').  Barclay's Bob Diamond could be set to receive a £7 million bonus and recently told MPs, ''There was a period of remorse and apology for banks, that period needs to be over.'' 

And even as I write this, literally, the Daily Mail reports that Barclays has been fined £7.7 million, and has been forced to pay back £60 million to elderly customers because of 'mis-selling'.  As the Sun likes to say: you could not make it up!

Tomorrow's Company is a leading international business think tank. We have long argued that businesses need to establish and continually earn their 'licence to operate'.  City leaders now need to recognise the importance of establishing a renewed 'licence to operate' not just for their own businesses but for the UK financial sector as a whole.

A coherent and effective communications strategy is a pre-requisite, and so too is some humility, but these need to be linked to a deeper commitment to recognising the importance of establishing responsible leadership, and embedding a commitment to clear values and clearly articulated purpose endorsed by society as a whole.

The public cannot understand how or why such payments are justified, especially at a time when so many are facing job losses and deep insecurity, whilst the Government has had to come to terms with the reality of bonuses being awarded despite election pledges to the contrary.  Cameron is surely right in arguing that we need to go beyond the blame game, but this has to go hand in hand with winning the case for the importance of the banking sector to our wider economy and society.

City leaders may well feel more than justified in making such awards, given improved performance - the City accounts for 14 per cent of national output (greater than manufacturing) and an estimated £53 billion to UK government taxes in the 2009-10 financial year, accounting for 11 per cent of the total UK tax take.  But with feelings running so high, these arguments won't change hearts and win minds, which is what now has to be done.

Private discussions with City leaders underline the risk to the future success of the City operating globally from the very real threat of major banks relocating or developing new business elsewhere, and loosing top talent.  The need for a truly global agreement to establish a level playing field on pay is acknowledged but has not yet been secured. We cannot wish away this competitive reality.

Now is the time for City leaders to step up and make sense of the bonus round. They need to state the case for banking in general, and the logic for these pay awards in particular. They need to outline a route map which points the way to future success over the long-term, and the contribution of decisions on pay now to help achieve that success.

To take RBS as an example, the case for Hester's bonus just has not been made, and the counter-argument is all too easy to see: what progress is being made to reduce the toxic debt, in relation to what milestones, and based on what benchmarks; given that we own this bank, surely there is a case to be made, and a way of making it?

Banks and financial institutions need to demonstrate their sense of responsibility to the economy and the society of which they are part - not only through lending to small businesses, but also by practically demonstrating their contribution to our future prosperity.

Tomorrow's Company argues that we need to see banks in the context of contributing to long-term value creation, taking into account the new value drivers which are re-shaping the global economy, building social and environmental as well as economic capital.

There are complex issues to be explored in relation to the performance incentives appropriate to investment and retail banking, and the balance between individual and team rewards.  Indeed RBS chairman Sir Philip Hampton has challenged the 'gangmaster cultural phenomenon' which leads to insufficient distinction between '''top people who really do make a difference, who really do move markets' and those 'who aren't such stars.''  The bonus round is playing out with key issues of reward strategy and policy still to be explored.

Above all, we need to believe that - once again - we can trust our banks.  City leaders need to detail the lessons that they have learnt and to outline how their leadership of our banks is changing cultures, embedding strong values, and building organisations that will deliver success for the long-term, effectively managing risk in their retail and investment operations, whilst re-capitalising the banks to protect against future shocks.

The recent statement of City leaders in a letter  to the Financial Times is important – 'Financial leaders pledge excellence and integrity' (September 28 2010) from Marcus Agius, chairman of Barclays, and 16 other finance leaders.

If the only question is, "Is it legal and profitable?", then all that matters is that what is done complies with the regulations in force and makes a profit for the seller and the institution they represent.

At its most extreme this philosophy undermines any concern for the best interests of the customer, and subordinates these entirely to the pure self-interest of the seller in maximising profit as an end in itself. It legitimates exploitation and in the end subverts the very basis of trust in the market on which all profitable activity depends.

This is strong stuff and there is cause for optimism in the discussions which are taking place in the City about how best to translate these sentiments into practical action which rebuilds trusts and restores the City's licence to operate – as a precondition of the future success of the City as a major financial centre in the 21st century.  As they went onto say:

Ultimately, it is the responsibility of the leaders of financial institutions - not their regulators, shareholders or other stakeholders - to create, oversee and imbue their organisations with an enlightened culture based on professionalism and integrity.