As we’ve mentioned already, something has happened to the number of people seeking new jobs in London. At this time of the year, post-bonuses, people would usually be looking for new roles. This year, that’s simply not happening. In March 2012, the number of new financial services job seekers coming onto the market was down 64% year-on-year vs. March 2011.
There are a few reasons for this.
Firstly, cash accounts for a lower proportion of bonuses and some cash may now be deferred - meaning that cash bonus payments don’t all happen in February/March as they did in the past. Whereas there was once a rush of new jobseekers when this cash hit bank accounts, candidates’ availability is therefore now staggered throughout the year.
Uncertainty also means people are unwilling to risk moving to a new employer.
But most importantly, people have amassed substantial deferred bonuses since 2010. Previously, hiring banks would have compensated new recruits for walking away from these but as we noted last week the FSA now considers this kind of compensation a ‘guaranteed bonus’, and the FSA only allows guaranteed bonuses in exceptional circumstances.
As a result, we have a standoff. Hiring banks are unwilling or unable to compensate new recruits for the often substantial bonuses they’re leaving behind. Potential recruits are unwilling to give up tens of thousands of pounds (or more) in deferred bonuses simply for the pleasure of a new job. Thanks to the FSA, people are locked in.
In the circumstances, power would seem to rest with the employer. Once a particular employee has amassed substantial deferred bonuses payable over the next three years (or eight in the case of Credit Suisse’s PAF2 scheme), it would seem appropriate to cut their bonus significantly for the next year or two: they’re locked in and they won’t be going anywhere else.
Fortunately, lawyers say the FSA has left an option open to candidates in this situation. Unfortunately, it is not without risk.
Under the FSA’s compensation rules, it should still be possible to resign and to retain your deferred bonuses.
“There’s nothing in the FSA’s rules to say you will lose all your stock if you resign,” says Sam Whitaker at Shearman & Sterling. “However, in the original draft guidance issued in July 2010 the FSA indicated that, on termination of employment, firms would be expected to defer any outstanding bonuses or LTIPS and for these to mirror the original deferral scheme (i.e. there should not be any acceleration of vesting).”
“The FSA remuneration code is unspecific on the point of resigning and retaining stock,” agrees Jocelyn Mitchell at law firm Freshfields Bruckhaus Deringer. She adds: "The Code has a general statement that payments related to early termination reflect performance achieved over time and are designed in a way that does not reward failure". Generally, the FSA has said that they expect deferrals to remain in place after an individual leaves, so it shouldn't be possible to negotiate accelerated vesting. Practice will differ amongst firms how a 'good leaver' will be treated. It may be possible that their deferred stock awards remain intact, according to their established vesting schedule."
In simple terms, this means therefore that you should be able to go your existing employer and say you want to leave. There is no legal reason why your employer should not allow you to do so and to keep all your deferred stock.
It’s worth pointing this out because some banks appear to be perpetuating a myth that the FSA only allows full stock retention if you retire.
“We're being told that FSA governed HR policies prevent deferred stock being paid if you have resigned, even as a good leaver (unless you are genuinely retiring),” one banker told us.
This is not true.
The only problem is that banks are under no obligation to give you all your deferred stock if you resign. If you want it, you may need to make concessions. Most likely: you will need to agree to remain out of the market for 6-12 months.
Resigning brings two significant advantages. Firstly, it allows you to change employers and to keep all your deferred stock. Secondly, you're not asking the new employer to buy out your stock (still possible in a minority of cases), you will be a cheaper hire.
The obvious downside is that you will need to resign with no alternative job to go to. The choice is yours.