Muted Bonus Season on Wall Street & The City

Banks in Europe and the United States are competing over a receding bonus pool in the financial industry. In Great Britain, many investment bankers are seeing a reduction in bonuses after another difficult market year. Furthermore, they are bracing for more potential restriction on compensation as political elections take place. Payouts for bankers in the United States, many of which will publish their results soon, are also expected to be muted, especially considering the past underwhelming fourth quarter. For example, Citigroup has declared that the bonus ratio for businesses would drop by approximately 7 percent.

Analysts of compensation trends on Wall Street believe that it is getting tough to keep peace within financial institutions as finance practitioners and traders war over who should get what in terms of bonuses. Ultimately, this is shrinking the pie. Observers of City banks in London such as Deutsche Bank and Barclays reveal that bonus ratios have fallen resulting from meager fixed-earning business records and the influence of a European bonus cap, restricting payouts to be within two times of the fixed pay of a banker.

Certain financial institutions, such as HSBC and Royal Bank of Scotland, are supposed to cut their bonus pools because of an unprecedented $4.3 billion dollar fine incurred for foreign currency trading fraud that they and other associated banks like UBS and Bank of America were compiled to pay in November. Investors are also looking at banks for a higher return on their capital through higher dividends and equity buybacks. Goldman Sachs, which traditionally is the indicator for bonus prospects in the industry, is predicting to allocate approximately 38 percent of its profits to staff in salaries and bonuses. The figure equals the figure paid last year, which is the second-lowest since its inception as a public company. Prior to this financial crunch, Goldman used to pay its workers over 40 percent of its profits.

Nevertheless, American banks are proving more generous than their European counterparts, specifically by giving more in cash than equities. For instance, Morgan Stanley had declared at the end of previous year that it would pay a larger part of the bonus in hard cash. This was interpreted as an effort to counter the criticism that its bigger-than-average deferred pay was going to add a lot to its balance sheet in coming years as well as to incentivize its workforce.

In the year 2013, the top 121 British bankers at Goldman Sachs were paid much more than their counterparts in the Britain, as much as approximately £3m each, based on their financial records. But the Office for National Statistics informs that the bonuses within the entire British financial sector last year were as much as 25 percent lower than their high in 2007. While business earnings are still tepid, greater competition exists for financial institutions seeking a profit. Moreover, the tussle for talent is also expected to catch fire this year as these institutions aggressively seek young bankers who can generate $100 million in earnings annually.


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