Multiyear bonus guarantees are back
Though multiyear bonus deals have yet to scale the heights of a few years ago, they're back in vogue for those in the right place at the right time, just with a few strings attached for you to get yours.
Marc Baranski, senior vice president and head of the financial services practices at HR consultancy Sibson Consulting, says, 'There is a higher demand for talent than last year or the year before, but the philosophy has changed from 'we have to do that' to 'we'd like to avoid doing that unless we have to.' Companies are a lot more planful about these guarantees.'
The right place at the right time
As banks' appetite for talent grows, they're offering more guarantees but in a more disciplined fashion from just a few years ago.
New York-based compensation specialist Alan Johnson of Johnson Associates says, 'What people would have gotten in the past would have been a lavish amount of money for three years and now it will be a moderate amount of money for two years.'
Certain bulge bracket banks remain notoriously reluctant to guarantee much beyond a base salary and a pedigree, but even there, what you get depends on what you're leaving behind, your book of business, how eager your employer is to retain you-and whether your sector is hot or not.
Sectors generating the highest profits are the ones doling out the most-and juiciest-guarantees. Mortgage-backed securities, high-yield and derivatives asset classes fit this bill, with banks looking for proven talent. Recruiters report a paucity of carrots dangled before straight equity or bond salespeople.
Structured finance players from director to MD are entertaining guarantees of between $1-3 million a year for two years.
Recruiters say non-U.S. firms working to establish a U.S. toehold, such as BNP Paribas, are particularly up-front and generous. Also in this category, Barclays, RBS Greenwich Capital and HSBC are actively building out their fixed-income practices. Recruiters say firms assembling teams from scratch must offer 'two-by-twos', or $2 million a year for two years, to attract top talent.
Advisory goes begging
The news is less positive on the M&A front. Headcounts have been largely flat this year, in the shadow of flat profits, so most firms are only looking for a handful of key people. Multiyear guarantees are scarce and usually limited to one- to two-year bonuses.
Michael Segal, co-head of the executive compensation and employee benefits group at New York law firm Paul, Weiss, Rifkind, Wharton & Garrison LLP, says, 'The M&A advisory business is becoming much more picky and it seems there's somewhat of a stratification where the rich are getting richer. The most senior and most sought-after bankers are able to cut very good deals in this market, but it drops off significantly once you get past the very senior people.'
Beggars can't be choosers, so if you're a middle-of-the-pack M&A banker and don't want to jump ship, best to learn from the masters where you are and trust your multiyear guarantees will mirror your success in future deals. Look long-term into 2005 and beyond.
A piece of the action
Many traders and, to a lesser extent, salespeople, are cutting what may turn out to be the sweetest deal of all: a percentage of desk revenues. These are hybrid arrangements combining a low, guaranteed floor with 20%-25%of revenues after expenses. (Each bank has its own fairly defined definition of 'expenses'; the most generous include only direct expenses.)
Gene Shen, vice chairman at global search firm Options Group, says, 'It's a way for firms to say, 'By giving you a formulaic upside, we have faith and confidence that you're as good as you say you are.' Which means, 'if you do what you say you will do, then we'll put our money where your mouth is.'
Although some U.S. bulge bracket banks give percentage deals, especially to combat the hedge-fund brain drain or to attract talent to a new business line, the trend is strongest within foreign banks operating in the U.S.
Shen says, 'It's a way of appeasing head offices in Europe and Asia, a way to say, 'Look, we're not making huge bonus guarantees but we are making guarantees so that if this business is truly successful, we're going to have to pay people at or above market in order to attract and retain them.'
This kind of risk-sharing also makes it easier on the MD's who must vouch for a new hire before the executive committee. Straight guarantees can translate into more than one rolling head if a hire doesn't goose up the bottom line as predicted.
Deborah Rivera, founder of New York-based alternative-investment recruiter The Succession Group, says, 'If you're a managing director responsible for P&L and you make a guarantee like that and that person doesn't pan out, your job can be on the line.'