Anxiety mounts over bonus expectations

As bonus time draws nearer, temperatures run high in relation to one question: after a bad 2002, how big are bonuses going to be this time?

People may be better off wondering about stockings. Psychologists say bonus fever can be difficult to handle, not only for bankers but also for their employers.

A managing director at a European bank described the symptoms: "Right now, we are all trying to increase our chance of receiving a large bonus. Therefore we include everyone in line management on every e-mail we send, pretend we were involved in deals we never had anything to do with, and send sycophantic e-mails to the boss's boss."

The run-up to bonus announcements is an unproductive time, explained another managing director: "No one does much work and everyone waits to find out whether they will be happy or sad."

David Charters, a former managing director at Deutsche Bank and a partner at Barchester, a corporate finance boutique, said: "A fantastic bonus and a miserable bonus are two very different extremes. A superb bonus can change the way you live the rest of your life."

Psychologists say bankers have fragile egos. Charles Woodruffe, a consultant at Human Assets, a firm of occupational psychologists, said bankers often rely on bonuses to prop up a shaky sense of self-esteem.

"There are a lot people working in the City of London who, despite great exterior self-confidence, are in need of reassurance. At a deep level, they lack a sense of inner security.

"For these people a large bonus is more than just a lot of money," said Woodruffe. Without it, they may plummet into a state of gloom and self-doubt.

Phillip Hodson, a psychotherapist who specialises in work with banking clients, said at this time of year they often approach him in a state of bonus-induced anxiety. Symptoms include everything from inability to sleep, to loss of appetite and diminished libido.

A big bonus can appear to cure everything, said Hodson. A small one makes every problem worse.

Hodson said many of his clients are jealous of bonuses paid to others. "I spend a lot of time listening to complaints about 'that bloke'," he said.

To overcome their feelings of inadequacy some told colleagues their bonus was bigger than it was.

One head of research at a bank complained: "It would be helpful if people had at least a 50% to 60% idea of what they will be paid, instead of it being a complete black box."

Despite several instances in which banks have been sued in relation to opaque methods of calculating bonuses, the process remains highly subjective. One problem is that line managers have short memories.

Charters said: "A dollar of revenue earned in the couple of months leading up to the bonus has far more impact on what you get paid than a dollar earned at the beginning of the year."

Another problem is that bonuses are about retention as much as about reward for past services. Charters said the biggest bonuses often go to people with big deals in the pipeline, whom banks cannot afford to lose. "People are paid on what is coming next year more than what happened last year," he said. This can fuel uncertainty and a feeling that the whole system is unfair.

Bonus levels this year will be particularly sensitive because many staff will be expecting an increase, after putting up with two years of big decreases. If they fail to get one, or it is smaller than they hoped, they may experience depression or anger.

There comes a point at which paying a bonus becomes pointless, even if someone has performed well. A managing director in the fixed-income division of a European bank said: "If you can only afford to pay a small bonus, you have no chance of retaining that person anyway, so why waste the money?"

The weeks leading up to bonus season may be filled with anxiety and last-minute networking.

However, veteran bankers say the bonus announcement itself should be received with utter impassivity. One managing director said: "When you learn what your bonus is, you must maintain a poker face.

"If you are happy, people who are unhappy will hate you and, if you are unhappy, people who hate you will be happy. You must go to the loo and have a cry or a cheer in private."

He said people who receive paltry bonuses should either leave for better pay elsewhere, or resign themselves to years of relative penury. "Don't think it's a one-off. Once you are in the system as underpaid, you will stay that way."

Hodson tells clients with small bonuses to reconsider what they want from an employer.

Investment banking is not an industry in which signs of love and appreciation are commonplace, he said. "If you are getting neither the bonuses nor the love, there comes a point when you have to ask what you are doing there."

However, Jill Flint-Taylor, managing consultant at Robertson Cooper, a firm of business psychologists, said positive messages from managers can help mitigate the impact of a paltry bonus.

When revealing the size of the award, managers should tell staff how much they appreciate them. Otherwise, even a huge bonus can have little value as a motivator.

She said: "People need to know they are appreciated, even when things have not gone terribly well. It's about pastoral care."

If she is right, perhaps banks should hand out Christmas stockings along with bonuses.