It’s the perennial fear of the gnarly and embittered senior manager: someone younger, hungrier, fresher and cheaper will come along and displace you – probably with more enthusiasm, less cynicism and greater willingness to do as they’re told.
According to PWC partner Jon Terry, speaking in the Financial Times today, dumping senior people is now a key strategy for investment banks. Costly old timers are being shown the exit. Less costly juniors are being elevated.
“We will see some churning where higher-paid bankers are going to leave and lower-paid people will be recruited for the same positions to make the business model work in that specific area,” says Terry. “There are two ways for investment banks to cut their high remuneration costs: firing people or replacing them with cheaper ones,” he adds.
There may also be a third way for banks to cut costs: they could force staff to accept lower pay by compelling them to sign new contracts. However, while Credit Suisse is allegedly contemplating this strategy, it has yet to be put into practice.
In the meantime, there are distinct signs that senior staff are indeed being culled. Goldman Sachs has been shaving its partnership pool. UBS’s cuts last week were rumored to disproportionately affect senior management. Richard Luddington, vice chairman of global capital markets disappeared. So did Robert Hoornweg, co-head of fixed income, along with Guy Reid, head of public sector debt origination and Mark Wheatcroft, head of European fixed income syndicate.
Claims that senior staff are bearing the brunt of job cuts may, however, be overdone. At UBS, for example, the reality is that the bank is cutting entire business lines. Senior staff are simply more conspicuous.
Michael Moran, chief executive of career management company 10Eighty which works with laid off bankers, says that it’s wrong to assume banks always cut costly senior staff first. “Often, a bank will just take swathes of people out,” he says. “Because senior people make the decisions, they will try to protect themselves and it’s more likely to be people who’ve just joined who get canned.”
Moran says the exception to this rule is when a new boss comes along and tries to get rid of existing senior staff in order to replace them with his own people. Andrea Orcel at UBS springs to mind.
What you can do about being dumped for someone cheaper
If you are downsized because you suspect you’re simply too costly, you could always volunteer to accept lower pay for your current role. In doing so, you could remove an employer’s argument that they needed to replace you with a cheaper alternative in order to save costs, says Elaine Aarons at law firm Withers. “This could raise questions over whether the dismissal was fair,” Aarons suggests.
If your replacement is younger, you could also claim age discrimination. But this will be tough – especially if the younger person is also cheaper. “In this environment it’s not difficult for employers to show that they need to cut costs,” Aarons says.
If all else fails, you could evoke the spectre of Kweku Adoboli. In court, Adoboli has sought to blame UBS for placing too much responsibility on him too soon. “Between John and myself we had 30 months’ experience and we were in charge of a $50 billion book,” he said last week. “Our book is massive. A tiny mistake leads to a huge loss and we were these two kids trying to figure out how to make it work.” Cutting senior staff and replacing them with juniors may turn out to be a false economy.