Bonus Reforms

I dont know the situation in the US, but here in the UK every politician and the general public are crying out for all bankers to have their bonuses withdrawn, and many are actually not taking them due to the political and public pressure.

This lead me to think; does the current bonus system need reforming? Certainly there needs to be some alteration where the employees WANT the firm to do well in the long run and are not just forced to via restricted options. Here is my suggestion:

• All bonuses are 100% cash.
• Only a certain percentage of the bonus is awarded up front on a sliding scale depending on seniority within the firm.
• The percentage NOT awarded immediately is held in a separate account (as cash) within the firm for 3 years.
• If at any point over the next 3 years the firm requires any kind of bailout, all of this bonus money which has been set aside is used before any kind of government money.
• If after the 3 years the money is still there, it is awarded to the employee in the form of options with a strike price equal to the share price of the firm at the time when the bonus was paid, which can be immediately sold.
• With government cooperation, the firms which opt into this form of bonus would either pay zero tax or only capital gains tax on the bonuses to incentivize them to do so.

Those are my thoughts, what are yours on potential reforms to the bonus system? Does it even need reforming?

The way I see it, this scheme would encourage banks to perform well in the long run, but provide better incentives to employees than simply awarded restricted stock or options.