Bonus pools are being sapped by guarantees
First half results have been good to bonuses. With the exception of UBS and Morgan Stanley, most banks have increased compensation accruals year on year, and average (mean) pay per person is up.
Unfortunately, it's not that simple. Strong competition for senior revenue generators means that a comparatively high proportion of the 2009 bonus pool is likely to be allocated to sign-on and retention guarantees, particularly in hot areas like prime broking.
"Some banks are going to face a difficult decision at bonus time," says Andrew Morland, a prime broking specialist at search firm Pelham International. "Poaching means they'll need to pay existing people quite well, but guarantees to new staff have reduced bonus pools."
"Every bank is different, but there's a much weightier proportion of guaranteed comp in areas like equity sales and trading and prime brokerage," says Lee Thacker of Silvermine Partners.
The problem could be particularly acute at the likes of BofA Merrill Lynch and RBS, which are said to have paid retention guarantees to existing staff as well as significant guarantees to new hires.
Alan Johnson, chief exec of Wall Street compensation consultants, says guarantees account for up to 40% of the compensation pool when hiring is booming. Figures given to Andrew Cuomo by BofA and Citigroup suggest 10% and 13% of their respective bonus pools were guaranteed last year.
Johnson disputes that guarantees will be a big issue this year, however. "We're hearing that they're going to be about 10-15% of the bonus pool on average," he says.
