Automation is squeezing banking bonuses, unless you're a quant
It's nearly bonus season, and there's a chill in the air. Our bonus survey, based upon the responses of 1,500 readers globally, suggests it's not just the depressed revenue environment that's squeezing bonuses this year: automation is also an issue.
On a sector-by-sector basis, and away from the investment banking division, some of greatest pessimism about 2022 bonuses compliance, finance and cash equities sales and trading - all areas where banks are trying to automate processes and cut costs. Quants, however, are in luck.
Compliance professionals expect big bonus cuts
Compliance professionals are at the forefront of automation efforts as banks deploy machine learning for tasks like compliance monitoring. - Surveillance spending is up 20% to $1.8bn this year as banks invest in technology. JPMorgan has invested in Laika, a compliance auditing start-up and Goldman Sachs has various vacancies in its CTO (compliance technology office).
As compliance is automated, employees have less bargaining power.
Cash equities salespeople and traders expect bonuses to underwhelm
While not as pessimistic as compliance professionals, people in cash equities sales and trading expect to see bonuses cut by 0.56%.
Cash equities pessimism comes after equities sales and trading revenues fell at most banks (barring Barclays in the first nine months of 2022). Pessimism reflects the automation of cash equities trading and the parallel squeeze on human participation in the market. Some people are still buoyant, though: one Goldman Sachs VP expecting a 50% bonus increase says “talent is scarce.”
Technology bonuses dip
As automation erodes bonuses in other sectors and with banks continuing to hire technologists, it might be expected that developers would be optimistic about their bonus potential. Not so.
Developers in banks are also expecting to see their bonuses cut this year. An average decline of 2.11% is anticipated.
Engineers' pessimism comes as banks are squeezing costs and as tech spending is being questioned. JPMorgan, for example, has spent big on tech, too big perhaps. Its 2022 $12bn tech spend has drawn the ire of shareholders, and the bank may be inclined towards modest bonuses as a result.
A good year for quant bonuses?
While technologists and people having their jobs automated away are not optimistic about this year's bonuses, quants are the exception. This year, they expect an 18% bonus bump. In their 2022 compensation report, Options Group predicted that risk, compliance, tech and quant as a whole would rise by 7.4%. With the other areas within the sector lagging behind, such a meteoric bump in quant bonuses does make sense according to that data.
