When McLagan speak about investment banking pay, it's worth taking note. Compensation benchmarking specialists, they work with leading investment banks to help determine whether they're paying people appropriately. McLagan's findings are, usually, strictly confidential.
Now, however, McLagan has participated in a study with the Association for Financial Markets in Europe. And the results are public. They tell a tale about as depressing as that told by the CEBR: investment banking pay is falling. It is falling a lot. Here, in bullet points, are the sorriest points.
Total bonuses are down:
• Total bonuses fell 31% year-on-year in 2011
This was more than risk-weighted profitability, which fell 28%.
• In 2011, total bonuses were 55% lower than in 2007
Bonuses are falling far more quickly than revenues or profitability. Aggregate revenue and risk weighted profitability were down a mere 3% and 15% respectively over the same period.
Deferred bonuses are down massively:
• In 2011, total bonuses paid out IMMEDIATELY after the year ended were down 46% on 2010 and 77% on 2007
• Cash bonuses fell 35% year on year in 2011 and were 63% lower than in 2010
• Year-on-year, every year, more and more bonuses are being deferred
Risk managers are now deciding your bonus
Total compensation is also falling:
• Total investment banking compensation was down 16% year on year in 2010
• On a per capita basis, total compensation is down 30% since 2007
But salaries are increasing:
Salaries rose 3% year-on-year in 2011, and have risen 37% since 2007
They will rise a lot more if the European Union's proposal to cap bonuses at 100% of salaries comes into effect.
Capital constrained businesses are constraining pay the most:
• FX professionals are paid comparably with 2007, credit professionals aren’t
The cost of capital is affecting bonuses, says McLagan. To whit: