News out of Europe and the US has bonus levels shrinking across the board, but how are things in Tokyo?
For banks that have paid out already, bonuses are down considerably on last year, says Nao Batangan, a financial markets recruiter at Michael Page Japan. “Some firms have indicated that 50% is the minimum reduction and in support functions this has typically been greater. Some European banks haven’t announced bonuses yet, but we anticipate a similar pattern,” says Batangan.
Matt Anderson, manager of the banking and finance team at Legal Futures, agrees with this outlook: “Most definitely we will see local bonuses drastically reduced over the next few weeks,” he says.
But Batangan add that some firms have mitigated bonus cuts by increasing other elements of the compensation package such as base salary and allowances.
What about the J-banks? They may structure bonuses differently, but in many cases levels are following the global trend.
“Japanese banks typically have some ‘bonus’ pre-determined and included in the summer and winter payouts. Performance bonuses exist for some functions and in some Japanese firms those were cut on a similar or greater scale than the US firms, particularly in support functions,” says Jon Goldstein, a manager at Michael Page Japan.
After a bad 2008, many believe we could see fundamental changes to the way banks calculate bonuses. “For all banks, assuming the economic situation does not dramatically change in 2009, it is highly likely that cash bonuses will have to be complimented with other forms of compensation, such as increased equity participation,” Goldstein says, adding that without comp flexibility, firms run the risk of losing talent.
Anderson expects that compensation and in particular the way staff are incentivised and rewarded will be subject to a major overhaul throughout the market.
“Perhaps the Japanese model, with lower annual cash-in-hand but significant long-term benefits, will become the norm. It’s highly unlikely they would adopt the Japanese model lock-stock-and-barrel, but perhaps it’s not totally inconceivable that a workable compromise exists somewhere in between,” adds Anderson.
Batangan adds another change will be related to the way banks take risks in the short and medium term: “In the future, bonus maps across a firm will have fewer of the spikes that were historically associated with high risk, high profit businesses like principal investments and prop trading.”