Until the credit crisis nearly toppled scores of banks around the world, few people gave much thought to bankers’ bonuses. If they did, they probably thought banks should be free to set their own pay levels.

As the dust settles on the banking crisis, however, it is increasingly clear that the bonus system was a major contributor. Cash bonuses running into the billions tend to create a blinkered outlook among bankers, especially when they solely reward short-term performance. Such bonuses almost certainly drove bankers to take outrageous risks, gambling the very fate of their institutions – or "betting the farm" - in the casino of the global financial markets.

Unless bankers’ pay can be reformed, and the incentives changed, governments around the world fear there will be another crisis and taxpayers will, once again, be forced to pick up the tab for rescuing banks deemed "too big to fail".

Finding an alternative system has become a priority. Initial attempts to find alternative structures were hampered by fears that if one jurisdiction imposed too draconian a solution, the country’s banks and bankers would emigrate to more liberal jurisdictions.

But possible international solutions have gathered momentum in recent months, with an agreement reached by the G20 nations at their Pittsburgh Summit in September seen as a touchstone by many. This does not cap amounts that can be paid but does include risk-adjusted performance criteria, a requirement that bonuses should be deferred over longer periods and that there should be clawback firm-wide performance falters. As The Journal goes to press, further proposals are on the agenda to be discussed at the meeting of the G20 finance ministers in St. Andrews.

City commentator Philip Augar, a prominent voice on the issue of bonuses, believes that wider, more structural reforms of the financial world may be needed. He believes that governments are so obsessed with tackling bonuses they may have lost sight of the bigger picture. "Bonuses are just a symptom. The cause is the excessive profits that financial institutions, and especially the investment banks, are able to make," said Augar. "Breaking up the investment banks into trading houses that provide customers with liquidity, research firms and boutiques that advise corporate clients would ensure they remain proportionate in scale and influence and reduce their capacity to make excessive profits at their customers’ expense. That way we would be able to keep the bubble gum in the sweet shop, avoid the risk of over-mighty finance threatening the global economy and retain the socially and economically useful functions of the industry.”

My thoughts are that the Holy Grail is to find a bonus system that rewards bankers for actions that promote the long-term health of their institutions, not potentially risky short-term financial performance.