Guaranteed bonuses return for M&A stars

Lehman Brothers and Renaissance Capital, the Russian investment bank, are understood to have offered guaranteed compensation packages to attract bankers to key positions. Last month, Renaissance hired Chris Baxter, head of energy at Merrill Lynch, to lead its M&A advisory operation in Moscow and is understood to have tied him in with a total compensation package worth up to $4m (€/3.4m) a year for two years. Lehman Brothers is understood to have offered similar guarantees to Goldman Sachs' Christian Meissner, who will play a vital role in the bank's German operation.

A director of a leading recruitment firm said: 'Guaranteed bonuses have not returned across the board, but where an institution is seeking to hire in a key market, such as Germany or Russia, then they are prepared to pay up. It's happening in one or two cases.'

In the case of Baxter, the increased attention paid to Russia by big investment banks meant Rennaissance needed a senior banker to maintain its market share. Meanwhile, Lehman is understood to have targeted Meissner over a year ago. He was a partner at Goldman Sachs, where he was co-head of European equity capital markets, and commanded a high premium to persuade him to move.

Guaranteed bonuses were a feature of the last M&A boom, when big investment banks sought to lock in key bankers. However, when redundancy programmes started in 2000, guarantees were scrapped by most banks.

In the past month, the recruitment market has shown signs of recovery. Increased dealflow has created demand for M&A execution, the area most severely cut in recent years. HSBC is hiring around 30 bankers, although it is not thought to be offering guarantees. The bank has learned from the experience of 2001, when the M&A department's reduced bonus pool was swallowed up by a few bankers on guarantees. Instead it is relying on the pulling power and reputation of John Studzinski, co-head of corporate and investment banking at HSBC.

Merrill Lynch is also hiring between six and eight managing directors. One headhunter said he knew of a mid-ranking corporate financier with five years' experience who had been offered a first-year guaranteed bonus of 100%.

Despite the signs of a recovery in M&A, banks are under no pressure to offer guarantees across the board, because there are still enough bankers out of work.

In the last two years, fixed-income departments have paid bigger bonuses. Gavin Bonnet, chief executive of Alexander Mann Executive Search in the UK, said: 'We've seen a slight increase in bonuses being bought out for senior staff compared with this time last year. Guaranteed bonuses of nearly 1m (€1.5m) are being paid in some areas, such as equity derivatives and foreign exchange risk advisory roles.'

However, most headhunters expect the balance to be redressed next year.