Bonus restrictions to hit junior staff
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Bonus restrictions to hit junior staff

Reports suggest that banks, such as Goldman Sachs and Credit Suisse, are going to curb bankers' bonuses – but only for junior staff

Executive bonuses – specifically bankers' bonuses– have caused public uproar, as many banks have sought help from the government to keep afloat.

In the UK, the rest of Europe and the US, governments look to crackdown on bankers' bonuses, while banks have responded with a mixture of actions.

On Monday,  the Financial Times said that RBS's chief executive of global banking and markets division John Hourican is to receive a "special bonus" of £4 million:

The head of Royal Bank of Scotland’s embattled investment bank is in line to receive a special bonus this year of more than £4 million, an award that will be contentious given the government’s vow to crack down on excessive executive pay.

Hourican was awarded almost 29 million shares and options in 2009, as part of a long-term initiative to restructure the group following its disastrous tie-up with Dutch lender ABN Amro.

This is, of course, despite RBS being 83% owned by the taxpayer.

There is no doubt that this will cause unrest in the UK and it looks like the culture of bonuses isn't set to change, despite the UK's prime minister David Cameron pledging to crack down on executive pay.

You just have to look at the lack of change in executive pay structures over recent years. Despite the credit crisis first exploding in 2007, bonus payments are still be made to this day.

Furthermore, MF Global has gone under– but its workers are still set to receive previously agreed bonus payments before it filed for Chapter 11.

An overwhelming number of analysts, experts and anyone linked to the industry has said that cuts to bonuses is not only "impossible" but it could result in less profit to the bank, flight of talent, alongside various other reasons.

However, the latest batch of media reportson Tuesday show that in the US, banks seem to be taking a different approach:

Wall Street’s biggest firms, facing a slump in investment-banking revenue, are considering freezing compensation levels for some junior bankers, according to people familiar with the deliberations.

Credit Suisse Group AG is likely to suspend its practice, an industry norm, of boosting pay automatically each year for analysts, associates and vice presidents within the investment- banking division, a person with direct knowledge of the decision said. While those employees will get their regular annual salary increases, bonuses probably will be lowered to keep total pay flat from a year earlier, said the person, who requested anonymity because the plan isn’t public.

Goldman Sachs Group Inc and JPMorgan Chase & Co are being watched by competitors for signs the companies are planning similar moves, said people at four other firms. Cutting pay can be perilous if your rivals don’t because it’s easier for junior bankers to defect, draining a future generation of talent. Wall Street firms may make the change en masse only if one or more of their biggest rivals act first, the people said.

So, according to this report,  instead of culling bonuses from the top of the ladder, the junior banker will end up with little or none at all.

Many might argue that the top bankers are the best talent and with that notion we suppose banks are worried that, without paying top dollar, these bigwigs will look elsewhere and gain employment more easily.

And it doesn't take a genius to figure out that junior bankers or those starting employment in the industry will most likely stay put, even with no bonus, because with the amount of job cuts on Wall Street alone, it does not bode well for starters seeking new employment.

So far, these reports have not been confirmed by the individual banks, according to the report, but time will tell if this will be an industry-wide strategy to appease governments and the public, without making a sacrifice for in-house talent.

- Euromoney Skew Blog

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