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Reasons why $10m bonuses are about to make a comeback

We pointed out some time ago that big bonuses will probably make a comeback in 2009. Now Breaking Views offers another perspective on why we’re about to see the return of the eight figure payout.

The article is for subscribers only, so a heavily summarised version follows in bullet points below.

The third point is the most interesting – the populace may well cry foul at the resurgence of the mega-bonus, but new pay structures should appease their indignation. The trick this year will therefore be to devise a pay structure which appears outwardly punitive, but in reality isn’t at all (Credit Suisse’s toxic asset scheme?).

· Banks earned huge amounts trading debt in the first quarter. This looks set to continue. Goldman is on track to match the revenues it made in 2006.

· Banks are paying back TARP and escaping related pay shackles.

· By pointing out that they’re spreading payments over several years and adding clawback clauses, organisations will be able to make $10m payouts seem more acceptable.

Comments (19)

Comments
  1. 500 times what a normal, hard-working decent person earns, for gambling? Tossing a coin or dice? Where is the justice? What on earth can you do with all that money?

  2. Accountant, what’s your beef?

    Mr. Frank White Reply
     
  3. My “beef” is that I earn 28k as an accountancy trainee, and mates I went to uni with not any better than me who chose sales/trading are earning 6 figures already age 22-23, and not through working harder, nothing like that.

  4. Accountant – life’s a b**ch, ain’t it? My advice: deal with it.

    You chose your profession and they chose theirs. Accept it and move on. Your whining just makes me pity you. Furthermore, I don’t believe you’re the judge and jury with regards to who works “harder” so the prudent thing to do is to refrain from such judgements. Plenty of people in Sales & Trading work extremely hard. I don’t think you’re in the office at 7am every day!

  5. yes, but:

    A. you CHOSE to be an accountant

    B. you can still change and make the no-brainer move to IB

    C. not many 22-23 yr olds in IB make over 100k, believe me. Couple of reasons for this. Firstly, many banks have compensation caps in place for people prior to Associate (or equiv) promotion, i.e. 2-3y in the job. Chronologically therefore, this is mathematically impossible assuming they finished education at 21 (min). FEW people below Associate make six figures total comp, and those that do are in the v low 6 figs. Secondly, banks simply don’t NEED to compensate MOST people as such at that stage of their career.

    However after Associate promotion, the comp curve steepens; 3-4y in and 200k is good going. After 5-6y you should be making VP (or equiv), and at this point salary should be 70-90k and the bonus 250%+

    Thereafter disparity in earnings can see very similar performers at in different roles / banks / geographies / asset classes earning vastly different sums, often with absolutely no rhyme or reason.

    Very ballpark figures, with obvious exceptions.

  6. jjj, your numbers are way off, either you’re not a top-tier performer or at a bank which doesn’t pay properly. Indeed there are normally bonus caps as a 1st yr analyst of 50-60k, thereafter profitable 2nd yr analysts easily go over 100k. Then as an Associate it spirals – 1st Yr Assocs can get 200k if they’re good, 2nd Yr 250k. Then VP, 250k+ as a 1st yr VP easily.

    Young, Rich & Pretty Reply
     
  7. After reading a few of these articles regarding the comp of bankers I would be interested to know the number of people there is in the city earning 300k+? Are we talking hundreds, thousands, 10’s of thousands?

  8. James, pretty much every 2004 grad I know is earning over 300k – we’re all 1st/2nd yr VPs age 25-26. Easily 50,000 earning over 300k, probably more.

    Young, Rich & Pretty Reply
     
  9. jjj is the first person in a long time on this site who has given an accurate picture of the remuneration trajectory for junior investment bankers (IBD). Young, Rich & Pretty you are probably only describing the salary profile for people exclusively in sales and trading at very profitable desks with a Tier 1 Investment Bank, and probably then only in bull market years leading up to 2008, or are you Henry in disguise?

  10. How about support people like Comms, Risk, Compliance? What do they earn? Any idea Sarah or others?

  11. @Danny-They earn pittance for their pointless jobs

  12. It seems to earn 300k+ you need to be a VP or above. Is it the case that there is 50,000 VP’s and above within good IB’s in the city?

    I’m 40 and earning well in excess of 300k though various business enterprises, however, it has taken a lot of work and time to get to where I am. If I new what the earning potential in the city was at such a young age I think I wold have opted for a few years there instead!

  13. It’s fill your pockets, couldn’t careless grab and run banking policy. No wonder the banks are going belly up. There is no control, the shareholders money is used by these idiots as they please. It’s a closed company, nobody get’s in – without you know who.

    There should be government legislation curbing these kind of open arrogant attitude to bonuses. Only the shareholders can get rid of them. It’s not their bank. So they take as much as the laws will allow. Bonuses Expenses etc. If these people didn’t get these bonuses I bet they wouldn’t work for these banks.

    These people are not in the least capable of earning these hugh sums of money on their own by running their own businesses or inventing a superduper pc in the garage. It stinks.

    They are abusing the shareholders trust because no one says anything, in any event if they do then it’s back to square one again.

    The shareholder and the investors are the lossers. It’s open aggorant abuse with a bad attitude.

  14. It does make me laugh when you read comments that say
    “They earn pittance for their pointless jobs”

    Having built various trading businesses from scratch, as well as holding senior trading roles at established houses, it is clear that support functions are without doubt extremely important.

    What people [especially younger front office staff] fail to grasp is that, actually, without the Risk and Finance functions, Trading and Sales businesses simply could not exist. It is ignorant to think that these people are irrelevent, because someone has to control the business, which believe it or not, is not the business itself! The whole point of those “boring jobs” in Audit, and Risk is to stop businesses acting outside of their remit. Good institutions spend a lot of money getting the staff in these areas right, and it is the institutions who have failed to do this which have suffered in the current climate.

    it is only the very mis-informed, who believe that they can trade or execute business outside mandates set by Risk and control functions. Heads of Trading and Sales all answer ultimately to what is effectively the highest Risk committee in the organisation – the Sharehold

  15. this thread is about compensation, can we stop talking about boring stuff…

  16. @Danny – we published a risk salary/bonus survey the other day which had full comp figures, You can see it here h**p://news.efinancialcareers.co.uk/News_ITEM/newsItemId-18968

    Sarah, Editor, eFinancialCareers Reply
     
  17. @jjj
    i agree with those numbers too
    you hear alot of crap on this site re numbers etc
    analysts are cheap, easy to fire, easy to hire. barely met anyone who contributes more than their salary at the beginning for sure. you’ll hear alot of boasting on this site but it’s not true

  18. @ deriv1980-You sound like a very interesting chap. I assume you work in compliance or audit

  19. sts – No….unless you know anyone who has set up trading businesses from compliance or Audit
    Please read threads fully before making ignorant comments.

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