Bonuses to hit record levels as lock-ins bite

eFC logo

Bonuses for bankers and financiers are set to reach record levels because of the continuing bidding war for talent and the guaranteed lock-in payments promised to employees during the glut of mergers this year.

Total pay packages are estimated to be between 25% and 40% higher than last year. These bonuses are expected to be paid at the year end despite the recent volatility of the markets due to the downgrading of technology stocks and unease over the direction of interest rates. Recruitment specialists said that the slowdown in activity, and the postponing of many new issues, had not yet had a big impact on pay levels because so many bonuses have been guaranteed.

Workers in the equities market will benefit most because of the phenomenal activity in the first half of the year and the persistent demand for top salesmen and sales traders. It is the so-called marzipan layer, the middle market employees, who have seen the biggest rises. Salaries of between 80,000 (€134,000) and 100,000 are still the standard but many can expect bonuses of around 700,000, nearly double some of last year's payments, and managing directors are likely to earn up to 1.5m.

Simon Vaughan-Edwards, a director at recruitment firm Alexander Mann, said: 'The really big pressure has been on banks that have merged and have had to pay hefty guaranteed bonuses to keep people.' This has been the case at Chase, which acquired JP Morgan, Dresdner and Wasserstein Perella and Credit Suisse after buying DLJ. Payments will be notably high in private equity, alternative investment management, securitisation and derivatives but bonuses to fixed-income trading staff will be flat. Options trading, because of currency volatility, has seen some spectacular earnings with some traders, said to be at Morgan Stanley, making amazing multi-million bonuses.

Firms such as Lehman Brothers and Credit Suisse First Boston have also been pushing up salaries by as much as three times the market rate because of their frenetic drive, known as the 'land grab' to pitch themselves at the bulge-bracket houses. Others, such as Schroder Salomon Smith Barney, have been paying a 'forgiveable loan', which offers two-year guarantees, while Commerzbank has been promising three-year guaranteed lock-ins to attract employees.

Vaughan-Edwards added: 'The market is splitting into four tiers with the top talent wanting to go to either the global or the niche players as their preferred homes. This means the middle two layers are having to pay big money to attract them.' He predicted a quiet first quarter with activity picking up as the market consolidates with more mergers and the continued search for talent by all the big houses, particularly Deutsche and UBS Warburg.

Michael Karp, co-founder of the recruiter Options Group, said: 'The Europeans, such as Deutsche, are still out there looking for the very best talent. Deutsche is scary, it is unstoppable in its drive to become a global force. It is hiring real talent in the US and in London still.' He added that big bonuses are being paid in other centres such as Paris and Frankfurt as the banks acknowledge it is a global market.

Wall Street has also notched up a record year with forecasts of total bonuses being paid of $10bn (€11.7bn) and at least 4,000 senior executives likely to receive payments of $1m or more.