As we reach the end of Q1 the majority of employees in financial services will have had their bonuses communicated. With the news full of record results in financial services and bars running out of champagne, I thought it would be good to give an overview of what we are seeing in the compliance market in terms of bonuses.
Bonus pools
The first clear message is that bonus pools are up. In general banking results have been the highest since the financial crisis in 2008. Banking M&A revenue was the highest in 22 years, and the rebounding economy has resulted in record profits on the retail side particularly in relation to mortgages.
eFinancialCareersreported a list of improved bonus pools following annual results, with Goldman Sachs increasing average pay by 23%, Deutsche bonuses up 15%, Barclays up 25%, UBS up 20% and HSBC up 10%. There are, however, exceptions to this, with Credit Suisse’s pool reduced by a third after the Greensill and Archegos scandals.
On the buyside, firms’ bonuses will vary massively depending on the performance of the fund/funds. That being said, in a recovering market and with plenty of volatility for event driven and macro strategies, asset managers, hedge funds and private equity firms are seeing strong performance and so increasing bonus pools. Johnson Associates (a financial services compensation consultancy) last year forecast that traditional asset management bonuses would up 12-18%, hedge fund bonuses up 10-15%, and private equity bonuses up 12-18%.
What to expect
By nature bonuses are hard to benchmark. They’re typically based on personal performance, the performance of the firm, and personal bonus history. If the pools are up, does this mean bonuses will increase by the same amount?
Many years ago I took part in a training session on allocating a bonus pool. We were given a hypothetical team (with several years’ bonus history and performance ratings) to allocate bonuses to and an amount to distribute. I divided my pot between the imaginary team and handed in my numbers. I had made the mistake expected in the exercise and divided the entire amount available rather than looking at performance and expectations and coming up with a reasonable figure that they would be happy with. The lesson from the session was that you do not necessarily use the entire pot. This holds true in what we are seeing year on year for compliance candidates. A 25% increase in bonus pool does not automatically mean a 25% increase in bonus received.
That being said, there is a general feeling that the pandemic has resulted in longer hours and lower bonuses over the last couple of years, and that this should have been addressed this year.
What are we seeing in the market?
On 8th March, International Women’s Day, the Government announced a pay transparency pilot scheme where participants do not ask job applicants to disclose salary, and employers publish a salary range with the aim of negotiating pay on a fairer footing and tackling pay inequality.
With this in mind, at Investigo we conducted an anonymous survey of bonuses expected/received in the compliance market, to which we had over 500 responses.
Banking Salaries
Fund Managers
0-15% 42%
0-25% 65%
15-30% 36%
26-50% 20%
30-50% 12%
51-75% 5%
50%+ 10%
76-100% 9%
On the banking side 78% of responses fell within the 0-30% range. On the buyside 85% fell within 0-50%. While we see outliers at either end of the range, from both a client and candidate perspective these would have been the core ranges we would have expected to see pre-pandemic. The expectation from candidates in general is that bonuses should be at pre-pandemic levels, if not above, given the pain of the last couple of years.
Benchmarking bonuses
Given the complexity around bonuses, how do you benchmark your bonus, or your team’s bonus?
Be aware of what your firm has communicated internally/externally in relation to the bonus pool. If the performance is up year on year, in theory the bonus pool should be too.
Understand where your performance sits within the population of the firm. However employees are graded internally, know where you are and how that may impact compensation.
Know what results are like in your sector are where you sit within the range. It’s worth speaking to a recruiter or asking your peers to get a feel for the overall range for your sector.
If you need any more advice about current bonuses in the compliance sector or you need help finding your next role or your next hire, please get in touch with me.
