Bonus Survey Report 2016 | London

Hakan Enver 27.04.2016

For the majority, bonus season has once again come to a close. Morgan McKinley’s 2016 Bonus Survey assesses the impact of bonuses paid out within London’s professional and financial services sectors.

A number of respondents from a range of backgrounds across the banking, asset management and insurance sectors, as well as a selection from the Big 4, were asked a series of questions to gauge their thoughts on the latest bonus round.

Of the respondents questioned, only 39% received a bonus, 23% got the same as last year, and 26% saw a decrease. The group that saw the biggest drop were those in the 15+ years’ experience (30%). 

Have you received a bonus this year? | Bonus Survey 2016 | London

Bonuses continue to evolve

The bonus culture in the City has been evolving for a number of years. This is being driven by a number of factors, including the general state of the global financial markets, but also the institutions themselves, who are faced with lower trading revenues and often finding themselves having to pay out huge fines for various failings.

Arguably, what contributes even further are the continual regulatory pressures being put on the industry to curb high pay outs for high risk taking. Since the European Banking Authority (EBA) changed legislation to limit the bonus payments to 100% of a banker’s salary, or 200% with shareholder approval, the attitude and general culture of bonuses has slowly changed.

Almost half of our survey respondents (46%) mentioned that their bonus has not influenced their decision to stay or leave their current company. Only a quarter (25%) threatened to leave on the basis that their bonus was below their expectations, of which the highest group to suggest this were in the 1-2 year bracket. The same group were amongst the majority to say they were most dissatisfied, at a staggering 83%.

Has your bonus infuenced your decision to stay with your current employer? | Bonus Survey 2016 | London

Millennials changing bonus sentiment

If you are familiar with the term Millennial, then you may not be surprised to learn that those starting out in their careers (1-2 years’ experience) were the most dissatisfied. Millennials have entered financial services at a time where are having to adapt their cultures to accommodate this new social group. This is being demonstrated with more diversity in the workplace, stronger mobility programmes in place and a shift to offer a better work life balance; the latter is being shown by a number global investment banks not permitting junior bankers to work over an allotted number of hours during the week.

With the latest bonus round estimated to have reached £5bn, banks are appearing to be showing more restraint in paying out large sums, reflecting the dismal performances witnessed in the sector. Barclays’ bonus pool was reported to have dropped by 10%, RBS by 11% and Standard Chartered 22%. In contrast to this, the number of City executives who were paid more than €1m increased to just under 3,000, with Britain housing the greatest number of high earners within the banking sector across Europe.

It’s unsurprising then, that our survey found that of the 38% who did not receive a bonus nor an increased sum, a third (31%) were compensated with an increase in fixed pay/basic salary.

If you did not receive a bonus, or received a decreased bonus, are you compensated in other ways? | Bonus Survey 2016 | London

Balancing reward with performance

It could be said that the financial services industry is struggling to balance reward and bonuses, with many now offering increased fixed salaries to wean staff away from the idea of controversial bonuses. However, many may see this as counterproductive. This was further supported by our survey respondents, where the large majority, 82%, suggested that bonuses encourage better performance. 

Alice Leguay, Co-founder and COO of Emolument said, “With a huge increase in base salaries in recent years (£150,000 to up to £400,000 for Managing Directors), the focus is slowly shifting from bonuses as base salaries now do much more than just pay the bills. Many bankers will content themselves with high base salaries and low or non-existent bonuses in an industry where lack of job security is rife these days.”

Do you think bonuses encourage better performance? | Bonus Survey 2016 | London

When asked what contributed most to the overall levels of bonus payout, 62% referenced organisational performance whilst 44% highlighted cost cutting initiatives. Only 28% believed the global economy had an impact and a relatively small 6% on team performance. Interestingly, a larger proportion of females (68%) cited organisational performance whilst more males believed it to be due to reducing costs. Not one person believed the pending referendum and threat of Brexit as a reason that may have impacted the lower numbers.

What do you think has affected bonuses most? (Top 3) |  Bonus Survey 2016 | London

Our survey also allowed an opportunity for respondents to offer individual thoughts. A common theme that appeared was that “discretionary bonuses seem to be totally arbitrary these days, with the pool being used to either fund shortfalls due to poor senior management decisions or used to pay the ‘big boys’ to more to keep them happy." Those aligned to revenue generating functions believe analyst’s comments have a direct impact on bonuses. Another employee, who isn’t within the front office, said “in my kind of work we are not considered front line enough to receive substantial bonuses. In good years, the pool is directed to sales and PMs to retain them, in bad years it is directed to sales and PMs to retain them.”
 
Many believe bonuses are insufficiently linked to individual performance. Only 14% said that their own delivery affected their bonuses, this is despite improved performance ratings from some. Clearly many are disheartened by this, with another individual quoting “Bonuses don't reflect working arrangements and mentality in 2016. It is very 1980s. But it is difficult to scrap them because people have got used to it.”
 
In summary, Morgan McKinley’s 2016 Bonus Survey demonstrates that there still exists a mix of opinions in the levels of bonuses paid out as well as the fashion they are offered. Many believe it to be a subjective process whilst those that are content with what they receive feel the deferred method of pay-out is unfavourable. There is popular belief that over the last 10 years, companies have been reducing bonus each year until they are able to remove it completely.
 
Only time will tell.

Hakan Enver's picture
Managing Director
henver@morganmckinley.co.uk