More than 70% City workers unhappy with their bonus
“Possibly the most deluded measure to come from Europe since Diocletian tried to fix the price of groceries across the Roman Empire,” blustered our mayor – characteristically applying his astute references to antiquity.
Boris Johnson wasn’t talking about strategical price fixing of kiwifruit in Sainsbury’s and Tesco. He was referring to the banker bonus cap being pushed through in Brussels.
“The most this measure can hope to achieve is a boost for Zürich and Singapore and New York at the expense of a struggling EU,” he added.
Boris isn’t the only one who has a problem with this imposition from Europe. George Osborne travelled out to the EU capital in March to meet with other finance ministers is discussing the prospect of a cap. Unfortunately for the City, he cast an isolated figure in his opposition of the measure which he was unable to veto.
“It will push salaries up, it will make it more difficult to claw back bankers’ bonuses when things go wrong, it will make it more difficult to ensure that the banks and the bankers pay when there are mistakes, rather than the taxpayer,” he argued to no effect.
The law has now been approved by the EU and it is up to the EU’s banking regulator to decide over the coming months which bankers should have their bonuses capped.
It’s more bad news for the City which has taken a battering in public opinion and been through tremendously disruptive restructuring leading to a great loss of jobs. The opportunities are not the same as they once were and the bonuses haven’t been at their infamous sky-high levels for quite some time.
“The conversations around the cap are a worrying addition in the City this year and will not help confidence in London,” says Geoff Fawcett, director at Hays, the recruiting expert. “We can only guess what the long terms effects would be but I am certain that the lack of good news is not what London needs.”
It certainly wouldn’t seem so. Hays has been conducting its annual bonus survey for the past few years. Its results are a great indication of the trend in City remuneration and the general feeling among financial talent at banks. In many ways, the statistics are unsurprising.
The amount of respondents who claimed to be dissatisfied with their bonus this year was 74%. Seventy percent felt their bonus should be higher, 63% felt their competitors were offering better bonuses and 44% said they might leave their current employer because their bonuses didn’t meet expectations.
It wasn’t all bad news however, the percentage of respondents who had seen their bonuses drop was 36%, lower than last year’s 48% which suggests that the pace at which bonuses are being slashed has slowed. Having said that, the number of those who received no bonus at all was 19%, up from 14% last year and 12% the year previous.
“There have been areas of good news, it looks like banks are nurturing their mid-level staff, those with three to 10 years’ experience with decent bonuses and the remuneration in regulatory positions looks good,” says Fawcett.
“But overall the banking profession isn’t happy with its bonus return. Many have suggested they will move roles. I think the figure of those who do will be lower than expected but a talent drain is clearly possible. The murmurings of intentions to move certainly don’t help confidence – we don’t want our top talent leaving London.”
The bonus conversation is always sure to get opinions flying. Many outside of the City and its behemoth banking institutions see no need for the sky-high bonuses of old. There aren’t many who would argue that the bonus culture should return to the way it was pre-crisis, but remuneration packages will have a lasting effect on London’s financial sector – once the largest in the world.
“The question of City bonuses will always be contentious but the facts remain that economics show us that price restraints don’t work,” says Guy Corbet, MD of Corporate and Brand at Brands2Life.
“A one-year bonus cap may not trigger a brain drain, but over a prolonged period people are likely to go where the money is, and the markets that can attract the talent will reap the benefits.”
With bonus levels already at rock bottom, talk of a bonus cap could stir international banks into action. According to a recent report in the FT, bankers have said that US institutions are considering moving their EMEA operations to another base such as Dubai.
“Bonus caps will fill many organisations with dread – whilst not disputing the corporate governance issues around pay, a cap on bonuses could seriously affect the attraction of London as a financial centre,” says Amanda Flint, employer solutions partner at Grant Thornton UK LLP.
“If a cap on bonuses is introduced there is likely to be a two-fold reaction to try and counter a potential brain drain. Significantly higher salary levels which will make bank pay structures more inflexible and could mean that it is more difficult to focus benefits on high performers. It is also likely that there will be more emphasis on long-term incentives.
“These moves run counter to the general mood on reward and incentives – where the policy is generally, a good or reasonable salary with the balance being delivered in performance-linked pay – with significant reward resulting only from exceptional performance. This gives companies a flexible cost base that reduces if performance dips – but it also allows good performance to be rewarded.”
The significant drop in bonuses, overshadowed by the likelihood of a bonus cap being introduced in 2014 is not good news for the City of London. The mood is subdued as is significant growth in the industry – once our strongest. But some would argue there has been a shift in the attitudes towards bonuses which is positive. It isn’t all bad news.
Hays found that a whopping 80% of respondents to its survey argue that it is positive for the banking industry that employees have had to become more accountable for their bonuses. “A bonus is a discretionary payment, not a reason to do the job you are actually paid to perform,” said one respondent.
“I don’t think the kind of people traditionally attracted to banking will be put off the industry,” argues Fawcett. “Younger professionals are starting to see bonuses as something you have to earn as opposed to a right. Banking is still a comparatively well-paid profession and will continue to attract talent. But there is an acceptance around responsibility and discouragement of aggressive risk.
“The changes occurring in bonuses need to be balanced. We have proved that they are still a hugely influential factor in people’s performance. The balance could be found in bonuses becoming real bonuses again rather than an expectation.”
This revelation could be a silver lining. Bonuses as actual bonuses.
The City has already gone a long way in transforming attitudes and reining-in the excessive cash rewards of the past. With that in mind, the cap will be an excessive and needless regulation from Europe. Lessons from Diocletian aside, only time will tell what effect the cap will have and what our bonus landscape will look like in years to come…
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