The ability of banks from European Union countries to recruit and retain key rainmakers in Asia will be affected by the introduction of harsh new EU bonus rules. But the full extent of the impact remains uncertain for now as candidates wait for banks to reveal their compensation strategies in 2011.
The final interpretation of the bonus rules from the Committee of European Bank Supervisors (CEBS), due to be published later this month, is looking likely to be fairly punitive. The regulations will apply to “code staff”, or senior managers and risk takers. Only a portion of a bonus will be payable upfront, with 40 to 60 per cent deferred over three to five years, depending on the risk profile of the staff member.
Some EU-headquartered banks have already expressed their concern that the rules will place them at a disadvantage when competing for talent in Asia against non-EU competitors. At a CEBS hearing on the rules in late October, a Credit Agricole representative said: “I have worked in Hong Kong and New York and I can tell you once these rules will be known or understood it would be extremely difficult to keep our good people, or even worse recruit them.”
And in a related complaint about the creation of an uneven playing field in compensation,
HSBC has confirmed that the UK bonus regime has already caused it to lose at least 15 investment banking candidates in Hong Kong because it can’t offer two-year guarantees. The new EU rules have renewed speculation that HSBC and Standard Chartered may eventually relocate their headquarters to Hong Kong and Singapore respectively.
Headhunters in Asia also believe the bonus regulations will have a bearing on EU banks’ hiring capacities. “The exceptional bankers, the very high achievers, tend to be more motivated by bonuses, not base pay, so any changes to their bonuses will naturally affect how they think about their employer,” says Amanda Lote, managing director, Lote & Partners.
Pui Gardiner, director, Carraway Group, adds: “High levels of employee stock ownership are always an issue for candidates as it somewhat limits mobility in the future. That said, some are happy if stock is granted at the right price.”
Employees of EU banks will now be thinking that their compensation is limited by the “sign above the door”, says Richie Holliday, COO, Morgan McKinley North Asia. “That didn’t used to be the case. I expect there to be some outflow of talent from EU banks during bonus season partly as a result of these changes. Banks from the US and other countries will be looking to take advantage in this competitive hiring market.”
However, as Holliday points out, as yet we don’t know exactly how banks in Asia, both EU and non-EU, will structure their 2010 bonuses, so we can’t make a like-for-like comparison until payments are made early next year. “And it will still cost a US bank, for example, a lot to buy out the deferred bonus of a key revenue generator at an EU bank. The playing field won’t be completely uneven and may level out over time. This year EU banks haven’t had enough time to mitigate the affect of the rules, but in the longer term they might.”
Increasing base salaries is the most obvious way that EU banks can try to offset any affect of the bonus rules. RBS has already lifted its pay rates, according to a Hong Kong headhunter, who asked not to be named. “HSBC has also been raising salaries to compete. Other EU banks in Asia may follow,” adds Gardiner.
Holliday thinks more base boosting is on the cards next year. “If an EU firm wants to hold onto a revenue generator, it will make an exception and ramp up his/her base. Revenue generators may not be entirely motivated by base salaries, but when it’s a key remaining tool in your armoury, you have to use it,” he adds.
The compensation quagmire faced by their European rivals means that Chinese, Japanese, Korean and other Asian banks can further build on their growing power in the regional job market. “Chinese banks in Hong Kong now pay base and bonuses at least as good as many of the Europeans. There’s been a dramatic shift over just the last 18 months as these banks opportunistically take on talent to get a share of the capital markets business here,” says Lote.