Behold the banks in Asia that buy out deferred bonuses with cash guarantees

Chinese corporate and investment banks are hiring in Hong Kong and (as we noted in March) they are trying to poach front-office bankers away from global firms.

But if you’re a candidate with a deferred bonus from an international firm, Chinese banks won’t buy out your stock options with stocks of their own, as Western employers usually would. What they will do is give a guaranteed bonus in cash, according to senior HR representatives from major Chinese banks who attended a recent eFinancialCareers roundtable discussion in Hong Kong.

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“Chinese banks don’t pay bonuses in stock, but if you have deferrals from your current bank we will still negotiate your bonus when you join us and give you cash. It’s just not apples for apples,” said one of the roundtable attendees, all of whom asked not be named in this report.

Chinese banks typically pay a cash sign-on bonus and give you another guaranteed payment after a year. If you’re a senior banker with a particularly large deferral, you may received a final cash buy-out amount, paid after two years.

“We can’t do stock options, these aren't common in China, but we do give enough cash to allow us to attract good people,” said a delegate from an investment bank. “It’s working for us.”

While the cash you receive won’t match the current market price of your deferred stock, you will be paid out early and you will avoid the risk of the stock price falling in the future.

“Candidates like it because they get their cash out sooner rather than waiting, say, another three years. They can then use this cash to make their own investments, which might yield them more than hanging onto a bank’s stock,” said another roundtable delegate from a Chinese bank in Hong Kong.

But there’s a sting in the tail: if you leave within 12 months, Chinese banks will usually claw back your sign-on.

Current employees of Chinese banks in Hong Kong can in theory also receive a discretionary annual bonus. But, like their Western counterparts, PRC firms aren’t exactly egalitarian – they are increasingly focusing their bonus pool on an elite group of rainmakers.

“For us, it’s very much performance-based. Recently we have been giving some average performers zero bonuses and we give very special recognition to top performers, our best 20%,” said a roundtable panelist in Hong Kong. Another attendee said her bank assigned bonuses based on a strict A-to-E performance ranking for all employees.

Results from the recent eFinancialCareers bonus survey reflect this trend. Across all banks in Hong Kong, medium bonuses (the amount paid to the person in the centre of the bonus distribution) are much lower (US$7,737) than averages bonuses ($32,676), suggesting that bonuses are weighted towards high-achievers.

Chinese banks in Hong Kong, who typically pay bonuses in the first quarter, are also aping their Western counterparts in trying to improve the way they manage employees’ bonus expectations.

“By Q3, if results aren’t looking good, HR starts to coach line managers on how to communicate this to staff,” said an investment banking delegate at the roundtable.