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Banking bonuses: The situation in 2024

2023 wasn't a great year for banking bonuses. 2024 may not be all that much better - unless you have the good fortune to work in areas like debt and equity capital markets, where revenues per head are surging.

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If you want to understand what's going on with banking bonuses, though, you first need an appreciation of why banks pay bonuses in the first place.

Why banks pay bonuses

Banks pay bonuses for a variety of reasons.

The first, and most obvious one, is to reward good performance. Front-office professionals work on big deals (if they're investment bankers) or execute big trades (if they're in sales & trading) that can generate a lot of profits for the bank. Bonuses are what they receive as a reward for working what can be long and painful working hours. Support staff in the middle- and back- offices of the bank also receive bonuses, although much smaller ones than their front-office counterparts.

Bonuses aren't just about rewards, though, they are also a retention mechanism. This retention effect is emphasized by the fact that bonuses are often deferred over several years, with a proportion being paid in each year. If you leave before the deferred bonus "vests", it doesn't pay out.

It’s worth noting too that bonuses are supplementary to normal salaries. A bank’s staff, no matter where they are in the world, are paid a regular wage, also known as their “base” or base salary, and this makes up the majority of pay for the majority of staff members. In Deutsche Bank’s investment bank, for example, €2271m was paid out in total as compensation in 2023. Of this, €1317m, or 58%, was in fixed pay (i.e., salary/base).

Different parts of a bank offer different amounts of bonus payment. The table above uses data from our 2024 salary and bonus survey, and shows how support functions in banks (such as technology, compliance, and operations staff) receive smaller bonuses - both generally and proportionally to their salaries. Those in revenue-generating roles received the highest bonuses, both generally and proportionally to their salaries.

How banks pay bonuses

Banks pay bonuses in a variety of ways. They typically comprise immediate cash, deferred cash, and deferred stock in the bank or organization that’s paying them. Senior bankers may have their bonuses paid in additional instruments like the AT1 bonds Credit Suisse paid its people. These were a special class of perpetual bonds that only banks issue to help maintain their stability by being convertible to equity to shore up a bank’s balance sheet. Their downside is that they’re a first line of defense when a bank hits a problem, as Credit Suisse staff who received them as part of their bonus packages painfully discovered.

Different banks have different payment structures. For example, when we looked at how boutique bank PJT Partners paid salaries and bonuses, a majority outlay was in cash – although it’s worth noting that that includes salaries, which weren’t broken out in the figures.

 At Jefferies, bonuses are paid entirely in cash, with strong claw back clauses to incentivize bankers to remain. If you leave within a few years of receiving the cash bonus, you have to pay it back - plus income tax. 

If you're a senior banker, a significant proportion of your bonus will be paid in restricted Stock Units (RSUs). RSUs are essentially company shares that can only be transferred to their beneficiary under certain conditions, usually time related. What this looks like in practice is that a $100k bonus, for instance, awarded to a banker will be paid as $25k a year for the next three years, under the condition that the banker stays at the bank for that entire time period.

The exact length of those time periods varies. In Deutsche Bank’s 2023 compensation report, for instance, which was published earlier this year, deferred rewards vested in either four years for Material Risk Takers (MRTs), three years for senior management, and five years for everyone else. MRTs are defined by European legislation as professionals whose activities have significant impacts on the material risk profile of a firm, and includes all those that earn over £660k ($841k).

As a matter of policy, Deutsche defers the entirety of bonuses paid to its highest earners – those with more than €500k in compensation. For MRTs below that number, it’s over 40%, and for senior management members, it’s over 60%. That can be a sizable chunk of pay.

There are also a heap of rules for European banks as governed by the EU and its famously brief legislation: a 121-page report on “sound” remuneration policy. We’ll touch more on that later.

Who gets the highest bonuses in a bank?

As our salary & bonus report earlier this year showed, the highest bonuses in an investment bank aren’t in investment banking at all, but in sales and trading. Investment bankers got pretty decent bonuses, but far below their past (or current) reputation.

Both sales & trading professionals are investment bankers constitute the front-office, or revenue-generating portion of a bank. The bulk of employees are support staff – those who work in areas like compliance, technology, operations. These guys don’t get bonuses as big as front-office staff, with the majority of their compensation in their salary.

MRTs at major banks (in the table above, American) in Europe have publicly-disclosed pay breakdowns. Although exact numbers varied, bonuses comprised around 40 to 50% of their compensation. At Deutsche Bank, the average bonus deferral rate for compensation for MRTs across the bank, of which a significant proportion are in the investment bank, was 91%.

What happened to banking bonuses in 2023?

Banks did not have great 2023s – which means that the bonuses they paid weren’t great, either.

Although bankers worked hard making pitchbooks and working on the deals that they did have, it was a slow year for investment banking volume. As such, there were only so many deals that a banker could have received a bonus for.

Sales & trading professionals, on the other hand, had pretty decent bonuses. This is because their performance is not as hampered by the wider economy, and it’s often the case that the best traders benefit from market instability as opposed to market consistency.

Data gathered by Short Squeez, a finfluencer, showed patterns similar to our report – while investment bankers all saw their 2023 bonuses fall, it was disproportionately junior staff (associates particularly) that were impacted.

How do bank bonuses work in different countries and jurisdictions?

Bank bonuses vary between different parts of the world, but not massively. Hong Kong and Singapore banker’s bonuses generally follow the same guidelines as the US, while the UK still operates mostly under EU-created legislation, which is very… Complicated.

The 121-page “Guidelines on sound remuneration policies under Directive 2013/36/EU” governs the union’s best practices on compensation. The document is long and complicated, but the general gist of it applies only to major firms operating in the union. The EU also applies a bonus cap that limits the amount a banker can receive as a bonus – 200% of salary if approved by shareholders, and 100% of salary if not. EU firms have been increasing salaries since its introduction as a consequence.

The bonus cap also existed in the UK until it was scrapped last year. Banks haven’t leapt at the chance to pay their staff more, however: Goldman Sachs only scrapped it internally earlier this month, while Barclays has kept it completely after a shareholder vote.

The concept of malus and claw backs are also something well-established in many jurisdictions: Singapore, Hong Kong, the EU, and the UK all require banks to include provisions in bonus contracts that force bankers to return bonuses if they have committed gross misconduct. Despite some hurdles, the concept is also gaining ground in the US.

The bonus outlook for 2024 & 2025

It’s difficult to predict bonuses as a whole in finance, but far from impossible.

As bonuses are generally tied to personal performance, analyzing the relative performances of various front-office staff can be a reliable indicator. Our analysis of data from intelligence firm Tricumen showed that investment bankers, particularly those in capital markets roles, are probably on track for the biggest increase in bonuses this year. Sales & trading professionals are on more mixed paths to more mixed bonuses. Analysis by Johnson Associates tells a similar story. Capital markets bankers could expect bonus increases of up to 25%, it said.

2024 bonuses are not assured, though. Bankers going into 2020 didn’t expect the coronavirus pandemic. Those going into 2022 didn’t expect Russia to invade Ukraine. And those going into 2023 expected an escalation of the conflict between Israel and Palestine. Things can change a lot. 

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AUTHORZeno Toulon

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