My MD friend from equities was unhappy: it was early in the year, bonus payments had cleared and a rival firm had poached another of his VP-level traders. “This time of year I flinch every time one of them asks me for a ‘quick chat in private’ “, he moaned, “it’s always, ‘I like it here, but…’ ”. I sympathised; my department, FX, had pretty low staff turnover, but I dreaded the ‘quick chats’, too. “What are you going to do?” I asked. “Handcuff him to a radiator”, he shot back, “it works in Lebanon”. If he went through with this plan it didn’t work in London. The trader left and was promptly replaced by a VP beguiled away from another bank.
If you are a banking employee with between two to six years experience, whether you stay or quit is always a major headache for your managers. Why two to six years? Partly because before two years are up it is difficult for your manager to see whether you are really any good or not. Huge efforts are made to employ the ‘best’ graduates, but even a first class degree from an ancient, ivy-clad university, multiple internships and that all-important stewardship of the university’s investment club can’t guarantee success when the financial bullets start flying and it’s no longer about theory, but cold, hard practice.
The two-year benchmark
If, at first, your own managers can’t tell – nor can anyone outside the bank. But after about two years, as a successful junior trader or salesperson you will start to get noticed: brokers or staff at other banks talk; customers mention names glowingly; headhunters begin to update their spreadsheets. Not only that, but there are a lot of potential jobs for you to do; investment banking, like most professions, has a pyramid structure – lots of junior jobs, few senior.
This is partly why demand drops off after about six years. There are simply fewer jobs for a successful six-year-plus employee to do. Also, by then, you might be accustomed to the way things are done in your own shop (systems, procedures, culture, the lot) and might be less suited to make the jump. But another big reason is simply economic: senior people are more expensive.
The expense comes in two ways: the need to offer bonus guarantees and unvested compensation buyouts. Senior people tend to earn more and have a ‘tail’ of unvested stock and cash payments from their old employer that the new bank needs to replace. For more junior folk, compensation is lower and they will not have had enough time to build up a huge – financial – handcuff.
Junior transfer fees
Occasionally, I’ve heard people suggest the seductive but impractical idea of transfer fees for junior employees to offset the cost of training. I dread to think how implementation of THAT plan would work and what football-agent-style nonsense it would create. But it is true that banks do try to make sure that when you are straight out of the grad programme you are paid within centrally determined bands carefully calibrated to look similar to those of other banks.
Regardless, banding only applies for the first year or so. Thereafter, it’s open season. I always found determining bonuses for junior, ‘un-banded’ people the trickiest job of all. Senior people have a long track record and so compensation is driven by personal, desk and bank performance. With junior bankers out of the graduate bands, much more nebulous concerns predominate: how good will this person eventually be? Is he or she very visible to our competitors? Can promotion keep them here instead of money?
Needless to say, because the task is more subjective and difficult, more mistakes are made and a misstep on a bonus or a promotion can soon lead to you asking for the dreaded (by management) ‘quick chat’. Nor can managers just throw money or corporate titles at everyone – bonus pools are limited and so are promotion slots.
So if you pull your boss into his office to announce a departure to Bank X, what can you expect? Obviously, this depends on how much your bank wants to keep you. If you just get a few desultory protestations for form’s sake followed swiftly by, “Well, good luck with all that. You should tell HR”, you better start saying your goodbyes. If the bank wants you to stay, things get more complex.
One technique some MDs used to use, but which I never really favoured, was to disparage the new choice: Bank X is terrible; your new boss is a monster; what on earth are you thinking? I say I don’t favour it, but once - informed of move to an institution that would struggle to call itself third rate, I burst into genuine and spontaneous guffaws of laughter. The trader stayed.
To avoid the use of this tactic, these days headhunters always hammer home the advice that leavers must not divulge their new employer’s name. Faced with this your boss might attempt the ‘bid back’ approach - promising to match an increase in pay offered elsewhere. This, however, is a minefield for managers – the budget for bidding people back is very limited. If you are moving for the money, though, this could be the point at which you decide to stay.
The softer sell
The alternative is the use of flowing, eloquent, well reasoned and logical argument. Management bullshit, as it is sometimes referred to. I was always surprised how often this worked, but maybe I shouldn’t have been. I’m sure that you are rational and want to maximise the pay and satisfaction you get from a lifetime of work, not just one year. Assurances that you are valued, that there is an upside at your current employer - in short, that the future is rosy – may well persuade you in light of a natural reluctance to move employer (since moving is risky and a pain). Naturally, this will work best if you trust your manager and, vitally, if the visions of a rosy future are convincing – I would guess that you, like most trading floor employees, have developed a very good nose for lies.
I think that the recent dissipation of these rosy visions explains the feeling in banking circles these days that juniors are getting more, rather than less flighty. Banking has lost a large portion of its shine. There are alternative employers with more kudos for the very ambitious – whether these are funds, tech firms or start-ups. Within the banking industry some firms are struggling and the fun of the job has been eroded in various Kafkaesque ways. The ‘talking’ solution to retaining you if you quit is therefore less useful than it was. Throwing money at the problem is trickier too in a world of reduced RoE and bonus caps.
So, in truth, I’m not sure when and how the situation will improve for banks. Maybe it’s time for my friend’s handcuffs and radiator to be tried once more.
Kevin Rodgers started his career as a trader in 1990 with Merrill Lynch in London before joining another American bank, Bankers Trust. From there he went on to work as a managing director of Deutsche Bank for 15 years, latterly as global head of foreign exchange. His book, “Why Aren’t They Shouting?: A Banker’s Tale of Change, Computers and Perpetual Crisis” was published by Penguin Random House in July 2016.