Bonuses for investment bankers should increase significantly this year, but that’s only if firms continue to follow their traditional compensation model and ignore calls to slash banker pay.
Driven by stronger-than-expected underwriting and advisory revenues, investment banks are putting together an understatedly solid 2013. Following an impressive May, revenues for the second quarter are expected to rise as much as 15% year-over-year.
Banker bonuses should increase along the same arc, between 10% and 20% for 2013, if banks determine compensation as a fixed percentage of investment banking revenue – usually between 40% and 50%, according to Mergers & Acquisitions. That’s a fairly big “if” though.
Public calls to slash banker pay have been met over the past two years, but the drop was mainly due to the poor performances of the banks amid economic uncertainty rather than some morally-driven decision by upper management. Now that revenues have rebounded, particularly in the U.S., banks will need to dole out bigger bonuses, likely meeting the wrath of shareholders and the general public, or redefine their compensation structures and feel the ire of their employees.
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