Zero bonuses used to be a blunt abbreviation for 'go away' in investment banking. Most people got the message: anyone who went into a bonus meeting only to be told that it had been a difficult year, that they or the firm hadn't performed and that they'd regrettably be getting nothing would kick a few bins, curse their bosses and stomp out the door in search of somewhere where they'd be truly valued.
That was the good old days, when salaries were small and bonuses were enormous. A timely reminder of that era was provided this morning by the revelation that Raphael Geys, SocGen's former London-based head of fixed income was paid a basic salary of £150k for 2007, but is claiming €12.5m (£10m) in severance pay.
Now, however, that base salaries have been increased to as much as £400k, it makes less sense to take yourself elsewhere when your bonus is zeroed. There aren't many alternative jobs to go to, so why leave? Why not stay on, collecting up to £17.5k a month whilst taking it easy? After all, it makes no sense to ramp up cortisol levels when you're not getting paid for performance.
Welcome to the so-called 'zero zombies.'
This year, it seems likely that banks will pay a higher proportion of zero bonuses than ever before.
Last year, zeroes were quite prolific. UBS, for example, said that 17% of investment bankers received no performance pay in 2011. This wasn't quite as bad as in 2008 when UBS cut its investment banking bonus pool by 80% and paid zero cash (to everyone), but the difference is that back in 2009 disgruntled UBS people left the bank. This year, disgruntled UBS people haven't had anywhere else to go.
One headhunter says banks are still deluding themselves over their ability to shoo staff out the building by offering them zero payouts. "Senior managers are out of touch," he says. "They think they can zero people in January and those people will leave to make way for upgrading. They're wrong. Banks are filling up with these zombies."
Faced with a 'zero zombie' who won't leave of his/her own accord despite receiving no bonus for one or maybe two years, banks have three choices: they can negotiate an exit and induce the zombie to go with a large pay settlement; they can performance manage the zombie out; or they can make the zombie genuinely redundant.
In the past, the first choice would have been popular. Banks would have simply declared someone redundant (even if there were suspicions that it wasn't a genuine redundancy), given them a big payoff and asked the employee to sign a compromise agreement foregoing all rights to pursue the matter in court. If they fancied, banks would then have been free to hire a superior candidate into the same role immediately.
However, this option has become harder for banks to negotiate. "There's less money around to pay people off and there are fewer alternative jobs," says Jane Mann, partner at law firm Fox Williams. "There's more tension around compromise agreements now," she adds.
This leaves option 2 (performance management) or option 3 (genuine redundancy).
Performance management is time consuming. It requires managers and HR departments to set goals and to pull staff up on them repeatedly when those goals are not met. Only when this has happened over a period of months can an individual be legally dismissed.
One head of recruitment at an investment bank in the City says proper performance management might be a good thing for the industry. "There are a lot of people who are still hanging around whom we expected would go," he says. "Performance management needs to be cleaned up so that we can get rid of them. It's harder and harder to persuade someone to leave with a payoff and we have less appetite for doing that anyway. We need to tighten our performance management practices instead."
The problem from a zombie employee's perspective is that any inkling of performance issues is likely to make you unemployable elsewhere. As we noted back in March, the FSA now takes a dim view of anyone dismissed for performance issues. If you have performance issues on your record and still get offered a job elsewhere, the FSA can take so long reviewing your Approved persons form, that the new offer will be retracted.
For this reason, it's better to negotiate voluntary redundancy before a performance review process is even initiated. In other words, if you're a zombie you need to accept a bank's paltry settlement and go quietly.
The final option is for banks to make their zombies genuinely redundant. This is the easier route and is likely to be pursued heavily throughout the remainder of this year and in 2013. Redundancy also allows for upgrading - if undertaken properly.
"You can quite easily make someone's role redundant by re-organizing a business internally," says an employment lawyer. "A lot of banks will carry out an internal re-organisation and say they're restructuring the team, but the real impetus will be to make some poor performers redundant."
Business re-organisations are therefore bad news for zombies. A re-organisation can result in a role being made legally redundant, without all the hassles of performance management. See Nomura for a recent example of this oeuvre.
Simon Maughan, head of sector strategy at Olivetree Securities, says zombies will go - later, if not sooner. "In time, we think the securities industry will go back to where it was 25 years ago. It will provide a stable, above-average paying, but not particularly affluent career for a small handful of people who live in the South East of England," he says. "Banks need to go through genuine redundancy processes and cut staff in some areas by 50%. Right now, they're still looking at each other and wondering who goes first."