If you work behind the scenes in an investment bank, in say a risk or compliance or operations job, you may not get a bonus this year. On the other hand, if you're a big revenue earner in M&A or sales or trading and you work at a US bank, it seems you may possibly still get a big bonus that's paid mostly in cash.
In a recently released a white paper, McLagan, the international banking compensation specialist, said it had been approached by "a number of firms" who wanted to scrap bonuses for infrastructure staff and pay them salaries alone. This marks the continuation of an existing trend, said McLagan: before the crisis, compensation for back office staff in banks was typically comprised of 70% salary and 30% bonus; since the crisis, salaries have risen to 80% or 90% of the total amount.
McLagan said banks have considered scrapping back office bonuses and increasing back office salaries because high salaries are seen as necessary to attract talent. Back office banking staff are often mobile between industries and as the premium paid by financial services over other sectors shrinks, higher salaries are thought to be a draw.
Fortunately for back office bankers who are looking forward to their bonuses, McLagan appears to have dissuaded its clients from doing away with them altogether. It said that bonuses are need to differentiate between high low performers, that any cost savings from scrapping them are likely to be minimal, and that it makes more sense simply to eliminate bonuses only for those 'transactional staff' whose bonuses were negligible in the first place.
Jon Terry, compensation partner at PWC, said he's not aware of any banks that are scrapping back office bonuses this year, but that zeros in the back office will be far more widespread than ever before: "When they're allocating bonuses, banks are having to differentiate far more than previously and it's a fact of life that the back office generally comes far down the pecking order when it comes to handing out the bonus pool."
Separately, there are rumours of generous cash bonuses to successful bankers in the front office. Goldman Sachs, Morgan Stanley, JPMorgan, Bank of America and Citigroup have all announced their bonus numbers. Morgan Stanley is deferring bonuses for bankers who earn more than $350k in total compensation (although 40% of the deferrals will be fungible in 2013). Headhunters said other US banks typically defer anything past $400-$500k in bonuses. Last year Goldman was said to pay generous quantities of cash and one headhunter told us today that he'd encountered a Goldman banker in London who received a $1m bonus, of which 70% was cash. "The cash component there was pretty high," he claimed. Goldman Sachs declined to comment.
Terry said most banks still seem to be paying a high proportion of bonuses in deferred stock this year. "There may be isolated examples away from the senior management structure where people are getting a lot of cash, but they'd be very unusual," he added.