Banks keep faith with cash in bonus round

Despite a difficult year, the proportion of corporate finance bonuses paid as stock and stock options is likely to be the same as last year, a survey suggests.

Sheffield Haworth, the headhunter, conducted a survey of 60 senior corporate finance executives in 24 different institutions. Fewer than 2% of respondents expected the cash proportion of bonuses to decline.

Neil Mckay, head of investment banking recruitment at Sheffield Haworth, said the results were surprising: 'Falling revenues and declining profitability (at banks) made it likely that the use of stock and options would rise. But on the basis of these results we expect no increase at all.'

The use of stock and options increased last year, McKay said. As a result, the non-cash element of bonus payments was now higher than one third at many banks.

McKay said options' stagnating popularity was the result of proposed changes in accounting rules. If passed, these will mean that companies must treat options as a cost.

In addition, many of the options issued by investment banks are deep underwater. One large US bank is understood to have offered staff options vesting at $38 over three years as part of its 2001 bonus payments. The bank's stock price is currently $25.

Nevertheless, Tim Sheffield, managing director of Sheffield Haworth, said most large banks were resisting the temptation to revalue options downwards. This was seen as bad practice and damaging to shareholders, he said.