Compensation culture

As bonus season rolls around again, it is clear this will not be a vintage year for compensation. We’re talking Range Rovers rather than Ferraris.

Of course, some bankers will always do better than others and it is impossible to generalise too broadly when it comes to pay. But it is also hard to escape the overall trend.

This is especially true for bankers at international firms in Asia, who tend to get paid after their counterparts in the home market — a lesson they learnt during the global financial crisis, when loss-making US bankers were protected and profitable Asian bankers got the dreaded doughnut (or big fat zero).

Bankers in Asia are still paying for their colleagues' missteps in New York and London, with the world’s biggest institutions on the receiving end of another battering from regulators and prosecutors in 2013.

US banks were the first to report full-year earnings, as is customary, and their results showed that business was more or less flat compared with 2012, thanks in part to fines and legal bills that ran into the billions of dollars for most of the big investment banking names. That means less money for everyone.

Most of the fines related to the fixed-income side of the business, and particularly rates — courtesy of the Libor scandals. That will obviously affect compensation for everyone in that area but others will do relatively better. Equities came back somewhat last year and the view from headhunters is that Asian bankers who churned block trades during 2013 will be among the year’s biggest earners.

But compensation is once again a sensitive subject, or as one headhunter put it: “Everyone still hates bankers.”

That’s hardly surprising, of course. Fresh scandals keep coming despite the supposed lessons of the crisis, reinforcing public perception that the industry is collusive, self-centred and irresponsible.

Some within the industry understand the criticism. “Look, news stories of huge bonuses are clearly not helpful at a time when the middle class is hurting,” said one banker.

This is particularly true when bank profits are seen as heavily subsidised — a product of government guarantees, discounted borrowing costs and taxpayer bailouts.

In Europe, such sentiments have led to a political backlash and proposals to cap banker bonuses. The essence of the idea is not terrible: bankers should be rewarded for winning business that benefits the institution in the long term, instead of profiting from trades that end up as long-term liabilities.

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