Investment banks are coming up with innovative ways to keep some staff on their payrolls, even while they let go of others in the wake of the credit crunch.
This inventiveness mostly takes the form of long-term stock grants, or measures that let banks defer cash expenses in hopes that revenue growth will pick up later on.
They may not be popular but, with most banks facing a more difficult future, bankers will feel the pressure to oblige until the employment market takes a turn for the better.
Joseph McCann of JH McCann & Co. says some firms – hurt by severe losses and flagging revenues – are tying up bankers with long-term stock grants that require staffers to remain for five years until the stocks have vested.
Others are said to be paying out cash on condition of continued employment – if people quit before a certain period they have to pay the money back.
This inventiveness comes from a need to avoid laying off staff wherever possible.
“You can’t just keep cutting staff too drastically and then miss out on the next recovery,” says the head of human resources at a US bank, who spoke on condition of anonymity. “A lot of the advisory, trading, investment jobs that have been let off by the banks… these individuals are flocking towards hedge funds and private equity, so our loss is their gain.”
The impact of Bear Stearns
Tan Soo Jin, vice-chairman of Amrop Hever Group, stresses that in the banking sector, they have already seen the impact of the Bear Stearns case. When JPMorgan bought Bear Stearns, the top management’s first move was to try to secure the continued services of the top performers. The rest [of the staffers] they could sacrifice, he explained.
“Some of the top performers who had bought Bear Stearns shares and invested a lot of their own savings, they may have been guaranteed a share price of, say, $30, a far cry from $170 but nevertheless a good promise from $2 or even $10,” he says.