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There are three key reasons for the growing global popularity of deferred bonuses: 1) appeasing the public and governments by punishing risk-taking bankers; 2) cutting immediate compensation costs for cash-strapped banks; and 3) aiding retention because employees must stay on longer to secure all their money.
But as firms in Asia Pacific gear up for increased hiring next year, do any of these justifications really make sense in this region?
Banks have undeniably received a bad press in Asia Pac over the past year. In Singapore and Hong Kong, the public had focused much of its fury on the mis-selling of Lehman Brothers minibonds. And Australians, including Prime Minister Kevin Rudd, are angry with Westpac for its recent mortgage interest-rate rise (not to mention its banana-smoothie explanation).
But does any of this even come close to matching the bitter banking controversies still brewing in Britain and America? Is there, for example, an Asian or Australian equivalent of the RBS bonus mess? I don’t think so.
The pressure to punish bankers by curtailing their bonuses isn’t so great in a region where most local firms have coped well with the financial crisis, and revenues at international banks are already recovering.
This takes us back to the deferral debate: with banker-bashing comparatively tame and deal flows picking up, would regional offices of international banks be expanding their deferral programmes to the same extent if they had the choice? Probably not. The fact is that HR in Asia Pac don’t have much say in determining their firms’ bonus strategies.
RBS is probably the most extreme example of a global policy hindering local hiring. The firm actually has fairly big recruitment needs in Singapore and Hong Kong, but attracting quality candidates is difficult when you have a tarnished brand name and one of the banking world’s most talked-about deferral regimes.
But how about the argument that deferrals control compensation costs? Again, this has its limits in Asia Pac. Banks here are now getting back into hiring mode, and the growth of deferrals can actually make recruiment more expensive.
If candidates come with long-term deferral arrangements, banks can’t just wait until March to hire them bonus-free. They are increasingly being forced to buy out cash bonuses for one or two extra years (and/or offer share swaps). That’s not cheap.
Recruiters and HR professionals in Asia Pacific are also sceptical about whether deferrals really aid retention. For senior, must-have people, banks in Q4 have already shown a willingness to buy out deferrals. And with first-half hiring rates (and pay increments) likely to be even higher, deferrals look set to become an even weaker weapon in the 2010 retention war.
New York and London need to cut Asia Pac some slack. The region is helping global banks to rebound, so offices in Singapore, Sydney and Hong Kong should be given more power over bonuses.
Agree? Disagree? Let us know below.
Hopefully things have changed in SG by now. As an ex-employee of RBS in Singapore, I was pleasantly happy to have been awarded a meagre bonus amount for 2008 when most were expecting none, but due the bonus deferral terms, “Bad Leavers” will have the deferred bonus forfitted. Guess what, folks like myself who resign to take up better opportunities are termed “Bad Leaver”. To get that bonus payout in full, you either stay put the full 3 years, of be made redundant, or get really sick.