Looking in, the public struggle to accept bankers’ bulging pay packages. From within, bankers are seldom satisfied, largely because of a lack of transparency fostered by the banks.
Unlike for other areas of financial services, such as carried interest for those in private equity, or formula-based bonuses for fundraisers, bankers’ pay is rarely directly linked to revenue generated. Politics weigh in, as well as necessity, as one business is called in to fund an underperforming area. Bonus amounts also fluctuate with the size of the overall bonus pool, market conditions and group performance.
Bankers will see this fluttering array of factors over which they have no control as diluting the impact of their own revenue generation, making bonus allocation seem arbitrary, disconnected from their own personal index based on the previous year’s performance and resulting reward. From the bank’s point of view, their top-down approach is fair in that it is inherently constrained by a set budget allocated in line with macro factors.
Banks have had to make some difficult choices since the financial crisis: reward revenue-generating individuals or retain specific demographic groups to keep processes running smoothly.
Junior bankers, previously neglected in favour of senior deal-making staff, were treated to increased bonuses this year in a bid to stop them leaving the industry in droves in favour of buy-side jobs. Put off by social stigma, overwhelming compliance processes and lower pay, their disillusion with banking is testament to fair pay being relative, showing bankers are prepared to forego higher pay in exchange for a more aspirational working environment.
Read more: The banking sector must be reformed
Nearly twice higher since the financial crisis, base salaries are shifting the focus away from bonuses and spreading pay predictably by level of seniority: bankers have learned to use their non-discretionary income to cover day-to-day bills, hence placing less financial and emotional reliance on bonus amounts and perceived fairness or lack of.
Comforting for some, frustrating for others.
Can bankers’ expectations ever recover from the transient vision of the Eldorado of the million-dollar bonus? While painful for bankers, unpegging themselves from the simplistic measuring rod of bonus levels should be a freeing experience with deep societal implications, forcing educated and talented professionals to re-assess their perception of what is a fair professional deal.