The investment banking hierarchical pyramid is not so much inversed as it is fast-becoming a pentagon. Junior bankers are being brought in at an ever-more rapid rate, and yet those in the senior ranks refuse to budge. Despite the fact that directors and managing directors are being targeted for redundancies, there’s something of a gridlock at the senior ranks.
Euphemistically described as a “lack of liquidity” among director and managing director employees by HR professionals in investment banks – much like the crisis gripping banks’ fixed income departments – firms are fighting the conflicting need to reduce headcount at the senior end and bring in the deal-makers they want to hire.
“It’s very easy to stay in your current role at the senior end if you continue to perform relatively well. If you’re bringing in the numbers, it’s hard for the bank to justify laying you off, and in the current climate, why would you want to leave?,” says Stephane Rambosson, a former managing director at Citigroup and head of investment banking at headhunters Veni Partners. “You have to rebuild your internal networks, attempt to transfer clients and it can be a pain to move. The pull factors would be a bigger job or a better institution, but these are not currently available to most people.”
There’s also the fear factor of moving. Investment banks are deliberately targeting more expensive employees for redundancy. Barclays showed 450 directors and managing the directors the door in the first quarter and continues to eradicate senior bankers as it cuts nearly 30% of investment banking headcount, while UBS is firing MDs as it bolsters the junior ranks and Goldman Sachs is working on its pyramid. Few new employers seem like a safe option.
The senior bankers that are switching firms currently are doing so for a promotion, rather than a sideways move, says Rambosson. One recent example is Nicolas Desombre, the former head of insurance for EMEA at Credit Suisse who moved to Citi to run its global insurance business and head up French investment banking. Similarly, James Simpson moved from UBS, where he was head of financial sponsor M&A, to HSBC, where he will lead M&A for the whole of EMEA.
For others, it’s a case of sticking with the relative safety of their current position and hoping they stay out of the firing line. If they are made redundant – even if this comes with the cushion of a big pay off – it’s difficult to get back into the market.
“Any senior hires among the bulge bracket firms are about upgrading, so they’re very unlikely to hire someone who is already on the market,” says Andrew Pringle, CEO and founder of headhunters Circle Square. “Everyone wants the same people – top performers who can make a difference to the bottom line immediately, but these are the employees the banks are working hard to keep.”
There’s a “lot of fat to trim” at the managing director level, says Chris Roebuck, the former global head of talent management at UBS and visiting professor at Cass Business School, and part of this is down to the legacy of investment banks’ promotion tactics. At UBS, he says, there was one managing director with oversight for 2,700 employees whereas others had no one reporting to them.
“A promotion to managing director has traditionally been used as a reward for high performing employees, rather than those able to manage people or run a department effectively,” he says. “There are still a lot of people from pre-2008 in senior positions, who don’t necessarily fit into the new culture of investment banking. The old methods for nudging out the bottom 10% – smaller bonuses, little in the way of pay rises – don’t appear to be working.”
MDs generally fall into three categories, says Roebuck – the truly high-performers who bring in invaluable revenue for the bank, the ‘mavericks’ who are high achievers but struggle with the bureaucracy of working in a bank, and the ‘dead wood’ somehow coasting through their career. The problem, he says, is that bank’s HR departments often struggle to differentiate between them.
“What’s clear is that investment banks are changing the characteristics they want to see in their leaders. They want people who can facilitate a culture of collaboration, which means they need to stop rewarding people purely for performance,” he says. “Inevitably, this means some of the old guard will eventually be targeted for cuts.”