Bad back office bonuses have left UK employees demoralised, but do cost-cutting banks really care?
Bonuses in the back office have been particularly hard hit this year, with banks choosing to reward high performers in the front office at the expense of support staff. Zeros have been commonplace, and often coupled with redundancy announcements within the divisions. Short-term, this means a demotivated workforce, but in the long run this could mean banks struggle to attract people into this area.
Cost-cutting has long been near the top of the agenda in investment banks’ back office – nearshoring is well-established in places like Glasgow, Edinburgh, Bournemouth, Dublin and Croydon – and more recently a number of banks such as Barclays, HSBC, J.P. Morgan and UBS have taken a shared services model for operational functions across different divisions.
Zero bonus, zero flight risk
Even so, the severity of bonus cuts this year has not sat well. In London, zeros for back office roles have been more prevalent than ever, says Mike Hartwell, managing director of specialist operations headhunters Hartwell Buck.
“The rationale behind smaller bonus payments is relatively simple – most banks believe the flight risk is hugely diminished this year, as few firms are recruiting in significant numbers,” he says. “Most banks have increased salaries, and are adding some cash extras by monetising benefits, but this hasn’t offset the lack of bonus.”
In the City, few investment banks are hiring, but in Glasgow and Edinburgh investment operations firms are still keen to bolster their ranks. Here, bonuses would always have been smaller – typically 20-30% of base salary, according to recruiters north of the border – but this year the majority have receive either nothing or a derisory offer.
“Bonuses are down significantly this year, and pay rises are largely off the table,” says Mike Leeman, director of financial services at recruiters Bright Purple in Edinburgh. “There are a lot of new roles currently, but people are only moving for pay parity or for a more senior position. Few employers are willing to offer a salary uplift to any new recruits.”
The litmus test to see if you’re a valued within the organisation is to find a new position and resign. Although pay rises are generally off the table, firms are still willing to provide “aggressive” buybacks to keep hold of top staff, says Hartwell.
“What we’re starting to see is a different type of individual taking an operational role,” he says. “Many used to view it as a stepping stone to the front office, or if they worked hard expected to be rewarded with a bonus of up to 70% of base salary. Now it’s more about life-work balance – people in operations used to be willing to go the extra mile and often worked until 10pm. Now senior operations managers tell me that juniors tend to leave at 6.30-7pm, and rarely put in the extra hours.”
The drive for cheaper labour
Roles where proximity to the front office is unimportant are gravitating away from London to nearshore locations, but some roles are moving from the UK altogether towards India and Eastern Europe.
Last year, for example, Barclays transferred 65 roles from Glasgow to India, while Citigroup stripped out transactional functions from its Edinburgh operation and now only carries out more high-end accounting roles. Morgan Stanley has a business services and technology centre in Budapest, while a number of investment banks carry out functions in Poland.
In short, scaling back bonuses shouldn’t come as a huge surprise when banks are looking to find ever-cheaper employees. The popularity of investment operations courses provided by the Chartered Institute of Securities & Investment and Scottish Investment Operations is growing in Eastern Europe.
“It’s just low-value functions being carried out in Eastern Europe, and not the sort of value-add jobs that you could develop a viable career around,” argues one senior executive within an investment ops in Glasgow. “There’s not much longevity in these roles, particularly with the increasing focus on automation which will ultimately mean reducing headcount in these areas.”
In theory, all of this should be turning off new recruits. There are already signs of this at a graduate level; most front office roles are filled by November, while vacancies for operations roles in nearshore locations usually remain open going into the new year. However, back office roles are still broadly holding their appeal, says Hartwell.
“As the roles being performed out of London have become more complex, the type of people applying for these jobs has become more cerebral,” he says. “Operations roles still pay more than a lot of other industries and continues to attract high quality graduates, particularly in the current economic conditions. If anything, competition is getting tougher.”
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