January 28, 2011 / 11:05 AM / 7 years ago

Bankers cite guarantees among bonus season gripes

* Flat to down describes much of 2010 bonus season so far

* Promised guarantee payouts frustrating others

* More stock, cash split up, deferred over a few years

By Michael Flaherty

HONG KONG, Jan 28 (Reuters) - With bonuses now in hand, investment bankers across the industry are feeling the sting of a new compensation climate and showing frustration with the size and structure of the payouts.

The 2010 bonuses so far are shaping up as flat to lower on average, with cash payments being broken up and deferred, and more stock added for veterans, according to a dozen bankers interviewed by Reuters.

"If you had a good year, you were flat in terms of bonus," said a J.P. Morgan (JPM.N) banker, speaking about his division. "If you had a so-so year, you were down."

High up on the list of grievances is the view that a significant portion of the bonus pool was sucked into the pot of money needed to pay guaranteed packages. Or, in other words, contracts that granted incoming or top bankers millions of dollars a year over several years no matter how they performed.

"Our bonuses were lower because the money went to guarantees," said one Hong Kong-based private wealth banker.

Banks such as Barclays (BARC.L), Bank of America (BAC.N) and Deutsche Bank (DBKGn.DE) were among the financial groups that attracted top talent last year, especially in the fast growing Asia market, offering guarantees to poach experienced bankers, according to recruiters and people inside the banks.

Banks who offer guarantees argue it's critical to attracting talent. But bankers not on guarantees who had a good year feel they are paying the price for those on pre-packaged deals.

The private wealth banker said he we was disappointed with his pay, because he felt it didn't reflect his performance.

"I had my best year ever," said the banker, who is not on a guarantee. Bankers probably often say that, but unlike early 2009, when the industry knew pay would drop, the latest bonus round sentiment seems to be a mixture of understanding, disappointment, and anger.

One investment banker in Singapore said he saw some colleagues storm out of the office, and not return the day bonuses were announced. Frustration levels may be higher in Asia, which although produces a smaller portion of the global fee pool, grew in almost every category.

However some bankers have pointed out that while Asia staff may feel slighted, there have been plenty of years where the U.S. and Europe carried the weight.

"I think generally people were okay with the numbers, but it's the structure that some of us are having a hard time with," said a senior banker at Credit Suisse. Credit Suisse publicly announced that it will defer more of its staff bonuses and will reduce cash payouts. [ID:nLDE70904I]

All banks mentioned in the story declined to comment. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

BREAKINGVIEWS on reality check on bonuses [ID:nN09150259]

FACTBOX on investment bank [ID:nTOE70N05U]


ANALYSIS on pay discrepancy at banks [ID:nL3E7CO0D8] ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

What changed this year is that even during average years for a bank, the bonus payout was able to make its way into the hands of people across the entire institution. Instead, this was the year of what some called the "donut bonus", or a bonus of zero.

There were other changes as well.

"The big difference this year was that they doubled the amount of cash they withheld from my bonus," said one executive director. "Few people are going to shed a tear for a banker. But when you have a good year, and you're used to getting a certain amount, it's created a bit of a liquidity issue for people here who own homes, have kids."

Last year and prior to the 2008 credit crisis, investment bankers could usually earn around half their bonus in cash, the rest in stock.

For a managing director, that could mean earning a $250,000 salary throughout the year, and a year-end bonus of $1 million, broken up in cash and stock. That is changing.

A junior banker at Bank of America said senior bankers there got bonuses in varying proportions--the more senior the higher the stock component. This individual said he got 70 percent cash and 30 percent stock with a one year vesting period. Junior bankers are usually paid much less than senior ones, which is why they take more bonus cash.

A Goldman Sachs (GS.N) managing director said that getting an overall assessment of bonuses at a bank is very difficult.

But he added that head count at the bank was up, in a year that was not very good for the industry.

"You have to protect the stars who are a flight risk," he said, meaning that a smaller bonus pool rewarding the top ranks would naturally mean less for others.

Additional reporting by Prakash Chakravarti and Stephen Aldred in HONG KONG; Dan Wilchins in NEW YORK; Editing by Lincoln Feast

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