Asian investment banking revenues have been on the slide this year, as have front-office openings for juniors – but get this: supposedly cost-conscious banks in Hong Kong are ramping up their use of expensive guaranteed bonuses to snare senior rainmakers.
“Guarantees have been back on offer recently for top-calibre directors and MDs – front-office roles that are acutely linked to P&L,” said Sarah Harte-Spencer, director, global markets, at headhunters Sheffield Haworth in Hong Kong.
About 70% of MDs hired over the last six months in Hong Kong have clinched one-year guarantees, although two-year deals remain rare, according to Hong Kong-based Stanley Soh, regional director of financial services in Asia at search firm Global Sage.
And the guarantees have come think and fast into the fourth quarter. “This year is the first ever year I have closed a guarantee in the month of November – only a couple of months before their bonus was due,” said Jens Soderlund, managing partner at Hong Kong search firm Sirius Partners.
Guarantees have staged a comeback in Hong Kong because in a tough market, investment banks rely heavily on elite rainmakers who can win them new business. There’s also an expectation that revenues will recover next year and banks will need to strengthen their leadership ranks in preparation, Soh said. “US, European and regional banks are increasingly fighting for market share by hiring strong revenue producers who command a distinct premium for their client relationships,” he added.
Bonus guarantees also help banks in Hong Kong hire senior staff without getting into “bidding wars” with rivals during the busy post-bonus recruitment season in the first quarter, Soderlund said. “If the candidate can bring a franchise and make revenue quickly, a business case can be made to get them in sooner rather than later. Approval for guarantees will come from top-level management,” Harte-Spencer said.
Inserting a guarantee into a job offer isn’t an easy task, however. Compensation and benefits teams at banks in Hong Kong must first negotiate complex payment and stock-vesting schedules with the candidate.
“The make-up of guarantees is changing – sometimes it’s a vesting schedule of cash aligned with the candidate’s existing schedule to ‘make them whole’ – plus a portion for bonus sacrificed by leaving the existing firm,” said Simon Tulloch, managing director of financial services at search firm Ingenium Group in Hong Kong.
“Banks that don’t have a stock programme will pay in cash, usually in form of a sign-on bonus, and the chunkier piece at standard bonus time or at year-end,” Tulloch added. “It’s a new era with a wide range of comp plans and responses by hiring firms to replicate or compensate for bonuses.”
Whatever plans they hit upon will be largely kept under wraps. “They need to prevent dissent among existing team members and avoid being pilloried by the press and public,” said a headhunter in Hong Kong who asked not to be named.
Aside from rainmakers, heads of department in the back and middle office – especially in legal, compliance, CFO and IT roles – are also getting guarantees, said Eunice Ng, general manager of search firm Avanza Consulting in Hong Kong.