There's a great deal of fuss at the moment about RBS's investment division's planned bonuses. They've made some money (great!) but want to pay over a billion in bonuses, which is over a quarter of the profit.

As the UK tax-payer owns 84% of RBS there is quite rightly uproar about this – why are we paying the wealthy fat-cats that we just had to bail out? However the RBS executive team are going on about how they need to pay these bonuses to keep the best staff, and that they’ll lose all the talented bankers to competitors. They argue that any control of bankers' bonuses should be across all banks, because otherwise they'll lose any edge. They're threatening to resign over this - they won't of course, but it gets them in the papers.

Both sides seem to have compelling arguments, leaving our government with a stark choice:

• Block the bankers' bonuses, which might win votes (or at least not lose them) but will result in all the best bankers leaving, and hence RBS will make less money.
• Pay the bankers' bonuses, which will definitely lose them even more votes but will keep the best employees and in the long term RBS pays the tax-payer back sooner.

The problem is that the fundamental assumptions here are just plain wrong for two reasons:

• 25% of all the profit is an insane amount to pay as any sort of bonus. What – I risk my entire capital (not just some of it - I risk every single penny) on your investment nouse and you take ¼ of my profit? I'm sure you know where you can stick that deal.
• The assumption that the 'good' bankers will leave if not paid the bonus is wrong. These are highly paid people already, so the ones that leave will be those whose priorities are skewed to the big risks for big rewards.

I've argued this second point before – would you leave a good, very high paying job, for another that might not be so good (or might go very wrong) but the pay was silly money? I'm sure a million pound job looks pretty appealing, but if you're already earning hundreds of thousands do you really want to take the risk of the new job?

The sort of person who takes a big risk for this kind of reward is specifically the sort of person that I don’t want looking after my money! It’s exactly that kind of high stakes gambling that got us here in the first place – why would we want to reward that?

It's just not good business practice to pay inflated amounts for things that don't really do you any good.

Cancel the bonuses (or knock them down to something that makes sense, like 1% of profit), wave goodbye to the risk taking bankers that leave and take all that profit to start paying back the tax-payer.