Bonus pools double for bond traders

Fixed-income bonus pools at many Wall Street bulge-bracket firms could end up double the size they were in 2002, with some banks having an extra $200m (€164m) to hand out to star traders.

Divisional heads are feeling the pressure to reward top revenue providers with large bonuses to prevent them being lured away by rivals, recruitment specialists said.

Michael Karp, managing partner at Options Group, the New York-based headhunting firm, said: "Fixed-income businesses have had a spectacular year and this is reflected in the fact that bonus pools are up by as much as 3% or 4% of revenues.

"It means that management will have the ability to pay top-line people enough to keep them happy and will make 2004 a tough recruiting year in fixed income."

Last year, fixed-income divisions typically paid 4% or 5% of their revenues into the bonus pool. This year, they are likely to pay as much as 8%.

This would leave the largest fixed-income players like Goldman Sachs and Merrill Lynch, with an extra $150m to $200m each to hand out. Rewards will be even more slanted towards top performers than in the past two years.

In equities, bonus pools are likely to also be up by about 2% of revenues, largely thanks to strong performances by many equity derivatives desks.

Equity derivative professionals will see bonuses rise by 15% to 30%. Even successful cash equity traders will receive more modest bonus hikes.