Preparing for the great stampede of 2010

After years of uncertainty and months of bonus-inspired patience, people are restless. In 2008 and for the first half of 2009 it was impossible or unwise to change jobs. For much of the past six months, it's been inopportune.

In 2010, this will all change. Many banks are expecting to hire. And once this year's bonuses have been paid, employees will be free to be hired.

Recruitment firms' greatest wish, and HR managers' greatest fear, therefore, is that staff turnover will go through the roof.

"For a long time, turnover has been abnormally low," says the head of HR at one bank. "Very few people have been moving voluntarily. In 2010 we could go back to turnover levels of 20% or more."

Our current poll reflects this. Of 170 respondents, 43% say they intend to move jobs in 2010, no matter what.

All of this makes the 2009 bonus round more important than ever. Get it wrong, and the resulting exodus could be damaging.

Fortunately - with the exception of RBS - most banks this year have a larger bonus pot to play with. At the end of the third quarter, compensation expenditure at banks which break it out was up anything from 22% to 74% on 2008.

However, with profitability up, expectations are too. Our recent survey suggested that more than 20% of people are expecting bonuses to increase in excess of 50% this year.

Challenges include:

· Identifying lost causes

It's futile making a large payment to someone who will leave anyway. Most banks are therefore busy identifying not only key staff, but key staff who will stay loyal in next year's hiring spree.

"No one's quite sure what to do," says the head of HR. "We want to pay top performers, but if we're not careful, we'll just be throwing money away."

· Rewarding people in fixed income currencies and commodities (FICC), while keeping M&A bankers happy.

2009 has been a record year for FICC, but a comparatively disappointing year for M&A. In 2010, FICC margins are likely to narrow, but M&A and capital markets activities are expected to pick up substantially. Paying key staff across FICC and IBD is therefore a strategic priority, creating the possibility that bonuses will be spread too thinly.

"The guys who run investment banking definitely want to pay their staff well this year - they'd be crazy not to," says one corporate finance headhunter. "Plenty of people will pinch them otherwise, but there are political issues around cross-subsidising from FICC."

· The ban on multi-year guarantees

Both the FSA and the British government have outlawed the payment of multi-year guarantees. In 2010, there's a possibility that this may dampen people's enthusiasm for joining non-established businesses, making it easier for market leaders to retain staff (and therefore reducing the need for large retention-focused bonuses).

However, this may be wishful thinking: "There are ways around the guaranteed bonus issue," says the head of HR. "And people are far more willing to join without guarantees than they were in the past."

· Salaries

UBS, Merrill Lynch and Citigroup (and now BarCap) have increased salaries substantially this year. Employees at these banks have been warned to expect a proportionate reduction in their bonuses.

However, it's unlikely that an extra 150k in salary will act as an incentive to stay in the face of an extra 300k in bonus at rival firms. Banks that have made substantial salary increases are therefore left in the difficult position of whether to ramp up bonuses too.