Banker's learn to settle for less

February 20, 2010

There are some tough choices ahead for Thomas Saltiel. After holding a senior position in banking for 27 years he is now back in the job market, one of thousands of City workers trying to “reinvent” themselves and coming to terms with the fact that their pay will be lower.

“It’s difficult to tell my young son to do his homework so that he can get a good job when he sees Dad at home all day. Looking for work in the City is still my main focus, and there are some strong possibilities. But I’m also thinking about using my skills to work in the not-for-

profit sector, or in the new area of renewable energy and green jobs. Obviously that would mean a pay cut and fewer benefits.”

Before this financial crisis began, unemployed City workers could expect to spend between three and six months looking for another job. Now that period is far longer and the search is becoming more competitive by the day. Last week’s second bank bailout and the problems at Royal Bank of Scotland and Barclays have led recruitment experts across the financial-services sector to revise their advice to clients. Bankers are no longer masters of the universe. It’s time for a big reality check. The focus is on survival.

Andrew Pullman runs the consultancy firm People, Risk, Solutions. Before that he was director of human resources for Dresdner Kleinwort. “There has never been a time like this,” he said. “I’ve been in the City since 1986 and we’ve never encountered anything so sustained. There will be a lot of zero bonuses.”

He added that the December year-end bonus round in America had already “set the tone, and made the fallout apparent”. In New York, Citigroup’s chief executive, Vikram Pandit, and outgoing chairman, Sir Win Bischoff, announced that they would turn down a 2008 bonus after the company required a government bailout and its market value fell by three-quarters. Senior executives at Goldman Sachs and Morgan Stanley are believed to have taken a similar stance, and experts predict that European institutions may follow suit this month. Rumours are circulating that Credit Suisse is writing a clawback clause into employment contracts to retrieve bonuses and benefits from employees who are dismissed or leave the company early.

Chris Brayley, a banking specialist, said: “I’m not sure how they actually intend to get that money back. One way could be through reducing severance packages.

“I predict that salaries will stay roughly as they are now because companies will always need top talent. Bonuses are the biggest issue. They account for 75% of earnings, and we could see not only drastic cuts but also a restructuring of how the system operates.”

Brayley said more companies would look at restructuring for the long term to retain staff. Measures may include fewer quarterly cash bonuses, more share options, and payment in different currencies.

MMK, a City remuneration expert, agreed. A recent survey showed that 75% of non-executive directors believed bonuses should be paid only for a continuous improvement in performance over a long period.

According to MMK’s Paul Norris: “Bonuses will be half what they were last year. There will be movement towards rewards that look at the long term, say ten years rather than three. I also expect to see far greater simplification. Companies that have many different types of remuneration packages will undergo a huge streamlining.”

Unlike previous years there will be far greater divergence in executive pay and benefits, with some smaller companies complaining that turbulence in the market means they no longer know what salaries to set. By contrast, larger firms will tie pay even more closely to performance — with reports that Citi bonuses will reflect which employees had been most valuable to the company and send “a strong message to those who haven’t pulled their weight”.

Those most expected to lose out are executives in their mid-thirties with more than 12 years’ experience. In such circumstances, working for the same company may be a disadvantage, with employers valuing diverse backgrounds and skills over those who have, in the words of one, “a year’s experience, replicated for the next 19 years”.

Such comments offer little consolation to Tomaso Neri, former head of a global management team for a big four accountancy firm. “Despite the global downturn I was still surprised to lose my job,” he said. “I’ve had to rethink my attitudes towards pay and benefits as the months have passed. At first I said I wouldn’t take a pay cut, but now it has been four months and I have to admit I would take a salary that was as much as 15% lower than my last one.”

Neri said he was considering working elsewhere in Europe, or in Russia or the Middle East. “Even if it’s a sideways step — and a sideways step for less money — it could be valuable if it demonstrates that you can invest in new skills.”

The financial crisis has made such moves not only more attractive, but also opened up the talent pool to companies that would have struggled to attract top-calibre candidates. Organisations that may have been considered second and third tier will now find it much easier to recruit. People who would previously have considered only a top American bank may now be looking at Bank of China.

“Someone who would only work for Goldman Sachs a year ago is now available to one of the Middle East companies that’s come to London in the past few years and specialises in Islamic finance,” said Michael Moran of Fairplace, which manages executive career transitions. Even so, he estimated, the bottom 10% of employees in the City could expect to lose their jobs, and would have little hope of finding another. Middle managers, like Neri, might remain employed but would probably find their salaries frozen.

Moran added: “There will be a fundamental change in how incentive and remuneration packages work, with the emphasis on building for the long term. Perhaps the only good side is that, unlike in the boom, human resources will find it easier to dampen people’s expectations.”

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