Firms Are Luring Bankers with Bonus Guarantees

Leverage is back on Wall Street—and now it's the bankers who have it. Companies are adding jobs for the first time in two years, rebuilding businesses cut during the financial crisis and offering guaranteed payouts to attract top bankers. "Candidates are now getting multiple offers, and companies risk losing their desired candidates if they don't act quickly enough," says Constance Melrose, managing director of eFinancialCareers North America, whose employment website has seen a 75 percent increase in investment banking job postings from a year earlier.

The removal of uncertainty surrounding Congress' financial reform bill may reinforce the hiring rebound. A deal reached by members of a House and Senate conference committee in late June diluted provisions from the tougher Senate bill, limiting rather than prohibiting the ability of banks to trade derivatives and invest in hedge funds or private equity funds. Five of the largest banks on Wall Street—Bank of America (BAC), Citigroup (C), Goldman Sachs (GS), JPMorgan Chase (JPM), and Morgan Stanley—increased their total head count in the first quarter, the first three-month jump since the start of 2009.

New York City had 429,000 financial jobs as of May 31, up from 422,200 in February, according to the New York State Labor Dept. That's down from the peak of 473,800 in August 2007. "The overall mood on Wall Street is significantly better than it was last year," says Richard G. Lipstein, a managing director at Boyden Global Executive Search. "There has been some pent-up demand for people, and that demand follows increased optimism."

The scramble for investment bankers and traders has firms paying 30 percent to 40 percent more than what employees expect to earn this year in salary and bonus to lure them from other banks, according to an April report from Options Group, a New York-based executive search and compensation consulting company. Equity derivatives and commodities trading are two of the fastest-growing areas, the report said.

Some companies have offered pay packages as high as $8 million, including guaranteed bonuses, which are paid regardless of an employee's or the company's performance, say recruiters. That's reminiscent of Wall Street's compensation practices during the boom, before the credit crisis forced banks to cut more than 345,000 jobs worldwide. "When markets fell to hell in a handbasket, people were lucky to get a job with a base salary, and everything else would depend on their performance," says Lipstein. "As we start to see people being recruited from one firm to another, as opposed to being recruited from unemployment, the need to make some kind of guarantee is becoming more necessary."

Leaders of the Group of 20 nations have tried to discourage banks from offering bonus guarantees for more than one year, on the theory that linking compensation with long-term success will help reduce risk. Still, even those banks that aren't providing guaranteed bonuses are telling candidates that they should expect generous payouts, say recruiters such as Ross Baltic, a managing partner at Mercury Partners. "There are firms that don't have the ability to make a guarantee or are adamantly against guaranteeing compensation," he says. "Instead, they're giving verbal guidance on what compensation may be. They're just not tying themselves down by putting something in writing."

The bidding for talent is improving perks even for some bankers who don't move to new jobs, says Lee Whiteing, HSBC's (HBC) U.K. travel chief. "Certainly in investment banking we're in a situation where it's an employees' market," Whiteing says. "Making them stay at cheaper properties, fly economy when they could go business, is not going to wash. They're just going to leave us and go to another institution."

The bottom line: Fading worries about financial reform legislation may reinforce banks' efforts to snare top talent with generous pay offers.

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