City whizzkids scoop millions in Christmas bonuses

Roger Dobson and Graham Ball investigate who gets what and why

Beware of strangers bearing gifts - and the man from the Revenue. Christmas bonuses and presents for staff are on the decline, but for those who still get them, the taxman wants a seasonal slice of the action. The Inland Revenue has warned that Christmas bonuses to employees, whether they are boxes of chocolates, perfumes or turkeys, are taxable and should be declared.

"Any gift that an employer gives to an employee, whatever it may be, is taxable. If people get a gift or bonus because of their job, it is taxable even if it is a box of chocolates, and it should appear on P11D, a form that employers can give to employees showing any benefits in kind and which comes to us," said a spokeswoman yesterday.

Dire warnings from the taxman have yet to deter top City firms from rewarding their staff. London's leading merchant banks and finance houses have enjoyed a bumper year and they are celebrating in the traditional way, with massive cash handouts for people in top jobs. More than pounds 500m is destined for the pockets of the already highly paid dealers, brokers and fund managers.

One of this year's biggest winners will collect a bonus of pounds 1.25m, in addition to his pounds 300,000 salary. Mr Bill Harrison, the newly appointed chief executive of the Barclay's investment bank, BZW, will get his bonus at the end of next March.

This year's pay bonanza has been fuelled by the record level of activity in the mergers and acquisitions market as City big fish have snapped up the smaller fry and foreign conglomerates have sought to move in on our cash-generating utilities.

The influential magazine Acquisitions Monthly, which monitors the market, has recorded that a total of pounds 42.6bn was spent on 1,239 acquisitions, pounds 2.3bn up on last year's level. These deals help bankers, lawyers and finance experts to generate bonuses that can exceed their salaries by up to 200 per cent in some cases.

In London the pace has been set by the American-owned investment banks JP Morgan, Saloman Brothers, Morgan Stanley and Goldman Sachs. City brokers and bond dealers are now topping the pay levels of their Wall St opposite numbers.

However, they will all fall short of the $10m bonus awarded this Christmas to the Englishman who heads the Saloman Brothers investment bank in New York. Deryck Maughan, a Durham miner's son who worked for the Treasury for 10 years before leaving to join the American bank, collects his bonus in addition to his $1m salary.

Yet in the London market this Christmas there is a sense of caution concealed within the celebrations. "There is a feeling that the market in bonuses has reached a peak," said Sean Arnold, director of the executive headhunting firm Odgers. "In a sense people are peering round the corner at 1997 and wondering whether or not the same volume of deals can be sustained, notwithstanding the election."

In the high street, one of the better bonuses being paid this year is to Marks & Spencer staff who each receive up to four weeks' wages, while Sainsbury's pays its staff pounds 100. Fifty years ago bonuses were commonplace, but with many workers moving jobs frequently, the extra cash has been abandoned. Some companies have swapped bonuses for other rewards. Tesco, for example, has replaced it with a year-round staff discount.

Not surprisingly, Eurotunnel will not be paying a bonus at the end of its disastrous year. Nor will the Revenue have to fill in a P11D for its own staff. "We get nothing; not a sausage," said a spokeswoman grimly.

A worker's guide to corporate cheer

Marks & Spencer: Full-time staff collect the equivalent of four weeks' pay tax free.

Sainsbury's: Staff get a pounds 100 bonus.

Harrods: Staff all receive a gift: "The nature of the gift varies according to the seniority of staff," they say.

Lloyds Bank: Clerical staff get 2.5 per cent as do staff at the Royal Bank of Scotland and Barclays. But nothing for the workers at NatWest or Midland banks.

Nissan: Assembly-line workers at Sunderland factory each get a free bottle of wine and a party for the children.

Tower Colliery: Miners at the last deep mine in Wales get a pounds 500 bonus this Christmas.

Bernard Matthews: 5,500 workers get a week's pay and a free turkey.

Northern Foods: Food production firm gives each employee a hamper containing tins of biscuits, cakes and other goodies.

Guinness: Employees get a number of products depending upon which area of the company they work in. The company's 17,000 pensioners each receive three bottles of whisky or gin.

David Lloyd Leisure: pounds 25 worth of leisure vouchers.

Whitbread Hotels: Staff Christmas party; Whitbread Inns headquarters staff in Luton each get three bottles of wine.

The Royal Household: No comment.

Gallagher, Abbey, Alliance & Leicester, Vauxhall, Imperial Tobacco, BT, British Gas, Royal Mail: No bonus.