Pay bargaining bears fruit

In Bonus Round, a short story by David Charters, a former managing director at Deutsche Bank, four senior investment bankers meet to allocate bonuses.

They give most money to ruthless people who threatened to move elsewhere and negotiated a guarantee. Hardworking types who have been with the firm a long time are subject to a "loyalty discount". When the process is over, a remaining 3m (€4.3m) is covertly split between two members of the committee.

The story highlights the nature of pay bargaining in investment banks. Other varieties of employer may reward handsomely for commitment or length of service, as well as performance. However, in banking, maximising pay is usually a matter of generating revenues, and then threatening to leave for a rival.

Given the current climate, this makes negotiating a bumper package all the more difficult. Not only is revenue generation something of a challenge, but threatening to leave is unlikely to carry much weight when rivals are not hiring. However, with the right tactics, negotiating a raise may still be a possibility.

Bankers hoping to extract money from recalcitrant employers would do well to start by reading Ros Jay's How to get a pay rise, a bonus, or whatever else you want.

Jay recommends a multi-pronged strategy: assess how much you are worth, build your skill set, get noticed for your success and negotiate carefully until you get what you want. She advises against telling colleagues you are thinking of asking for a raise in case they want one too. You should not make the request in an informal setting, or ask for more money when the company has just posted poor results. Jay says you must ensure you get the value of any raise, and associated performance targets, in writing.

Assessing how much you are worth requires awareness of how much other people are paid for your position. "Obtain as much data on compensation to help justify the increase in compensation," advises one senior headhunter. Salary surveys are likely to be a good source of information.

A job offer from a competitor will help formalise your value on the market, and is therefore to be desired, albeit hard to come by. "You are in a much weaker negotiating position if you don't have a competing offer," warns the same headhunter. He says the carrot-and-stick approach works best with investment banks - first allude to the rival offer and then stress how much you wish to stay with your existing employer.

With or without this trump card, it is also advisable to know what you want before negotiations begin. Rob Yeung, a business psychologist at Kiddy and Partners, suggests making a wish list of ideal improvements. This is not to be shared with the boss, but is for one's own guidance and represents what would be awarded in ideal circumstances.

Yeung says the trick is to be flexible with regards to this list: start by asking for something valuable, and be prepared to be bargained down if necessary. One element on the list can be traded off against another: if you do not achieve an extra 10,000, you may get permission to work from home occasionally, or gain funding for an external leadership course.

Nevertheless, it is unwise to jump at the first thing you are offered. Michael Moran, executive director of diversified HR group Penna City, says employees must be prepared to argue their corner. "You can always negotiate downward, but don't jump at the first offer you get - you can usually negotiate that upward."

Moran says employees should always give reasons they deserve a raise, rather than saying they need a raise. Yeung agrees: "If you barge in and say 'this is what I want', the most likely response is 'No. Go swivel.'."

A slightly different approach may be required in non-Anglo Saxon countries. Elisabeth Marx, a recruiter at search firm Hannover Fox, and author of the book Breaking through culture shock, says employers in continental Europe place greater emphasis on comparability and fairness. Successful pay negotiations are likely to centre upon whether an existing package is unduly mean compared to what everyone else is receiving.

Jean Facon, a headhunter at Christopher Beale Associates, and former member of the European management committee at JP Morgan, says that in France, the market is divided into two segments, each requiring a different approach to pay bargaining.

In one segment, comprising internationally mobile senior bankers, Facon says employers are amenable to bargaining strategies that emphasise global employability and the possibility of earning more elsewhere. But in the other, comprising domestically oriented staff, he says pay is largely determined by seniority, length of tenure and collective bargaining. Domestically focused French bankers hoping to get a better deal are unlikely to find it easy.

Whether you are in France or not, asking for a raise is probably a bad idea when market conditions are so poor. A managing director in equities at one US bank says: "In this market, it's a good idea just to shut up about higher pay." Shaun Springer, of search firm Napier Scott, warns that people who demand more money in testing circumstances risk pricing themselves out the market.

To illustrate his point, he tells the cautionary tale of a private banker offered a position with a basic salary of 95,000 and a guaranteed bonus of 285,000. He turned it down, demanding 500,000 or more. Four months travelling the world later, he was forced to accept the same job, at a basic salary of only 75,000 and with no guaranteed bonus.

However, pay-bargaining skills may also be put to good use when it comes to negotiating redundancy packages. Here, at least, flexibility may be considerable. Philip Landau, a solicitor at Landau Zeffertt Dresden, says redundancy pay-outs from investment banks vary widely, from a week's to a month's salary for each year of service.

As with pay talks, scare tactics get the best results. Landau says banks often pay more to employees who intimate unfair dismissal.

Another solicitor, who represents banking clients, says alluding to discrimination can yield large redundancy payments: "When it comes to discrimination, banks are more likely to pay than risk going to court. Discrimination is the biggest card an employee has to play."