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Salaries Higher, But Less Cash in Hand

While bonus decisions are in the spotlight this time of year, banks have raised base salaries broadly during 2009 in an effort to ease employees' pain from having a greater share of their pay deferred. But, higher salary or no, many financial industry professionals are likely to jump ship next year.

Overall, base salaries are up 20 percent to 100 percent across the board at most banks, Options Group says in an overview of global compensation trends released this week. The executive search and strategic consulting firm says the key question now facing employers is, "Have salary increases at the top banks helped build loyalty?"

For one thing, with many front-office professionals set to receive more than half of future compensation in the form of restricted stock and options spread over a long period, an employer's stock performance compared with rivals will loom ever larger in the loyalty equation. Barclays Capital, for instance, tentatively plans on paying 75 - 80 percent of compensation in stock and options that vest over periods as long as five years.

'Year of the Re-Trade'

Although the loyalty issue appears most pressing for major U.S. and European institutions that bore the brunt of the global financial crisis, Options Group's report also spotlights a potential movement of banking professionals in the opposite direction: from mid-tier securities firms back to Wall Street. Labeling 2010 "The year of the re-trade," it predicts global banks' improved viability "may very well lead professionals to re-trade away from the broker-dealers" such as Knight Libertas, Collins Stewart and BTIG that had successfully recruited from bulge-bracket banks early this year.

In line with similar projections from other sources in recent weeks, the report sees 2009 bonuses soaring across the board, except for asset management. Bonuses are projected to climb 40 -45 percent this year for fixed-income (with commodities and high-yield credit rising even more), with 30 - 35 percent gains for equities (led by equity derivatives and cash equities traders) and investment banking. Still, the projected bonus gains in most business segments won't fully erase the respective declines recorded in 2008. Bonuses for professionals in structured credit and credit derivatives, the asset types that sparked the industry-wide meltdown, are seen recovering only 10 - 20 percent over last year's shrunken levels.

Some Payouts Will Breach 2007 Record

However, the combined bonus pool at the three insititutions that weathered the crisis best - Goldman Sachs, Morgan Stanley and JPMorgan Chase - is expected to hit a new record high, exceeding the 2007 level of $26.8 billion. Citing analysts' estimates, Bloomberg News says those institutions will hand out a total of $29.7 billion in cash (some of which will be deferred) and stock among 119,000 employees.

The first concrete reading on 2009 bonus payouts will come from Royal Bank of Canada during the second week of December. Its fiscal year ended Oct. 30. At RBC, "Cash vs. Stock will generally be in 50/50 split range but will ramp higher for the more junior professional," Options Group says. Within some areas of the Canadian bank, such as fixed-income trading, pay is expected to reach 2007 levels.

AUTHORJon Jacobs Insider Comment

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