Since the Great Recession hit, Wall Street bonuses have been the subject of a lot of scrutiny, both in the media and amongst the general public. But regardless of whether you believe bankers make too much money, perhaps it’s important to think about what this compensation structure really means for the economy as a whole. A video posted recently by actually defends the Wall Street Bonus, outlining a number of key points about the system and its benefits.

First of all, many people think of a bonus as a reward for outstanding performance or contributions to the company’s earnings. However, on Wall Street, bonuses have a slightly different function. They are actually part of annual compensation for bankers and traders. This allows banks the flexibility to take into account their earnings and any significant losses before determining what they will pay all their employees. By limiting fixed costs, banks can actually avoid layoffs. And while you might argue that you are not concerned with bankers losing their jobs, this can have a ripple effect on other sectors of the economy. For example, a report published recently by Thomas DiNapoli, New York State Comptroller, estimates that for every Wall Street job lost, two other non-banking professionals will be out of work in New York City, and 1.3 other jobs will be lost throughout the state. Everyone from real estate agents to cab drivers have a stake in the stock market.

Typically, Wall Street bonuses are awarded partially in cash and the rest in deferred stock. When bankers get a large lump sum of cash like this, they are more likely to pour a good portion of the money back into the economy right away, buying cars, houses, and other expensive goods. And with cash bonuses up 9% last year, this actually benefits the economy overall. But the industry is certainly still on the rebound. And while bankers and traders dislike the uncertainty that comes with this type of pay structure, it is ideal for banks, since it helps them take into account their profitability over the past year and, if need be, cut costs quickly.

So while a cash bonus pool of $20 billion in 2012 seems outrageous to most of us, this type of compensation structure is essential to the continued recovery of the financial sector, and thus, the economy as a whole stands to benefit from it according to the video posted by

Another bright side to this type of rewards system is that it may actually discourage a “go-for-broke” mentality among bankers and traders. This is because poor performance could result in a more immediate bonus reduction rather than a decrease in salary the next year. So whether or not you agree with the type of salaries Wall Street professionals command, it is important to consider how the system works before condemning bonuses all together.