Bonus cuts biggest at top

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Banks are preparing to use their tribulations as an excuse for slicing viciously into pay. Senior staff look set to suffer the deepest incisions.

"Bonuses will be worse than many expect," says Lee Thacker, a partner in the financial services practice at Heidrick & Struggles. "You don't get these kind of asset write-downs without getting some severe pain in the bonus pool."

Brad Hintz, analyst at Sanford Bernstein in New York, says senior staff (who he also predicts will be the first to get the chop), will see bonuses trimmed most vigorously: "The percentage decline in managing director pay during a downturn is always greater than the decline in compensation for vice presidents and associates."

Squeezing junior bonuses doesn't make much difference to the bottom line, says Hintz; it may even incline juniors to quit (something that may yet come to look like a good idea).

Bleeding bosses

Some bosses have signalled their willingness to take a financial beating. Deutsche Bank chief exec Josef Ackermann confessed to having made 'mistakes' last week and said that he will take a pay cut if the bank doesn't meet its profit targets. And Florian Homm, co-founder of hedge fund Absolute Capital Management, quit last week amidst rumours that he wasn't happy with proposed payouts to the fund's top level managers. Before he walked out, Homm himself reportedly agreed to forego his bonus so that it could be shared between other staff.

However, there are doubts that other senior bankers will be racing to follow Homm or Ackermann's examples. "Most banks tend to say to their managing directors: 'Pay yourselves well and then divvy the kitty up between everyone else'," says one headhunter.

The Centre for Economics and Business Research is predicting that bonuses will fall 15% this year to below 7bn.

Bad omen for jobs

There are also ominous harbingers for jobs. Last weekend The Telegraph said over half the City's proposed new office developments could go the way of proposals to introduce Maglev trains between London and Glasgow (i.e. nowhere). This was partly attributed to poor conditions for raising financing and partly to dubious prospects for employment.

Thacker says some teams will be cut by at least 20% as investment banks resize in terms of headcount.

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