2016 bonuses will not be the best. Wall Street compensation consultant Alan Johnson is already predicting declines of 5% to 25% depending upon the sector you work in. In the City of London, the outlook is worse still: "Banks are running bonus accrual rates that are 25% to 50% below last year," says the head of one search firm. "Everyone's expecting the worst year in living memory."
This may be so at London's cost-constrained European banks. But U.S. banks' bonus pools could receive a welcome boost from sterling.
Far from regaining ground, the British currency hit its lowest level for a month yesterday. It's down 13% against the dollar since the EU referendum and 24% against the dollar since its recent high at July 2015.
This is good news if you work at a Goldman Sachs, a J.P. Morgan or a Morgan Stanley in the City. "Banks typically calculate their bonus pools in home currencies and then convert them into local currencies," says Jon Terry, a partner at PwC. "Most U.S. banks will have a dollar-sized bonus pool which will then be converted into sterling."
Beneficial currency effects are already in evidence at law firms in London. At U.S. law firm Kirkland Ellis, for example, City-based juniors reportedly had their pay pegged to the dollar in June. Their monthly pay now fluctuates in accordance with exchange rate changes; some have reportedly received annualised salary increases of over £20k as a result.
Employees at U.S. banks in London won't be this lucky: banking salaries tend to be denominated in local currency. But if the pound continues to fall, they should be rewarded at bonus time. The existing gulf between the bonuses at European and U.S. banks is likely to widen as a result, which is bad news for European houses trying to recruit and retain staff in London.