Caught between dwindling revenues and the need to retain talent, foreign investment banks in India have changed the way they reward bankers. Although annual bonuses have been down by about 40 per cent this year, the stock options and shortened duration of deferral bonuses are more rewarding, say headhunters and bankers.
Some firms like the Bank of America Merrill Lynch and Deutsche India Equities Pvt Ltd have given their employees stock options that vest immediately, as against the earlier period of 3-5 years. Others like Credit Suisse Securities India Pvt Ltd and J.P. Morgan India Pvt Ltd have reduced the time period for deferral bonuses.
“The bonuses have been quite conservative considering the overall global scenario and the shrinking revenue kitty of investment banks in India,” says Siddharth Raisurana, head of consulting at ABC Consultants, a domestic headhunting firm.
M&A deals in India declined nearly a third to $41 billion from 819 deals during 2011 as against $60 billion from 806 deals recorded in 2010, according to VCCEdge, the financial research platform of VCCircle. Lower deal values mean lower deal intermediation fee.
The position was no better in other segments where i-bankers rake in the moolah. The IPO and follow-on issue markets also crashed from $13 billion (71 issues) in 2010 to a little over $3 billion (40 issues) in 2011, according to VCCEdge. Even debt capital market saw lower volumes last year.
According to headhunters who compile data on bonuses, Barclays Capital has capped the cash bonus payout at GBP 65,000 and around 60 per cent of the bonus is deferred. A deferred bonus is paid in subsequent years to the employees. Bank of America Merrill Lynch has capped the bonus payouts to $150,000 for employees earning more than $1 million. For employees earning less than $1 million, the US-based bank is giving either an all-cash or an all-stock bonus. In case of a stock option, the stocks vested immediately in February. “The stocks were as good as a cash bonus as we could encash it immediately,” one of the bank employees says.
Citigroup Capital Markets Pvt Ltd has paid half of the announced cash bonus immediately while the other half will be paid in the latter half of the year. However, the overall bonus announced by Citi is 30 per cent lower than what was announced in 2010.
Credit Suisse, which advised promoters of Patni Computer Systems Pvt Ltd on their stake sale to US-based iGate Inc in January 2010, has paid up to GBP 150,000 bonuses to their employees. But the split between the cash and the stock is not known. However, the vesting period of the stocks has been reduced from four years to three years.
For Deutsch, the bonus payout is capped at €200,000 and the bonus is split equally into cash and shares vesting immediately.
For J.P. Morgan, however, there is no difference between its overall bonus payout for 2011 and 2010. The bank has paid around 70 per cent of the bonuses to employees earning more than $1 million in cash while the rest is in stocks vesting in three years. For employees earning less than $1 million, around 75-80 per cent of the bonus is in cash.
Morgan Stanley has capped its bonus payout to $125,000 and bonuses at UBS Securities India Pvt Ltd are down by 60-70 per cent. The exact splits for both the banks are not known. For Goldman Sachs, which advised Reliance Industries Ltd’s 30 per cent stake sale in its 23 oil and gas blocks to British Petroleum, the bonuses are down by 25 per cent, but for senior-to-mid-level employees, the bonuses have been cut down by around 40 per cent.
Since 2008, around 70 per cent of the remuneration of investment bankers has been in the form of stocks, deferral bonus and cash payouts. Foreign banks operating in India announce their bonuses at the end of the calendar year while domestic banks announce those by May-June as they follow an April-March fiscal cycle.
“What banks have fundamentally done in 2011 is to reduce the headcount and it has helped them manage their otherwise high revenue to fixed cost ratio. In 2008, banks did not ask their senior executives like managing directors and directors to leave, but in 2011, we have seen some senior exits,” said Puneet Singh, Partner (financial services) at the headhunting firm Heidrick and Struggles.
In November 2011, Nomura Financial Advisory and Services India Pvt Ltd asked four of its core team members to leave. They were Nipun Goel (headed the investment banking division), Indraneil Borkakoty (led the equity capital markets division), Shubham Majumdar (executive director) and an analyst.
Among others to cut jobs last year were Bank of America Merrill Lynch, BNP Paribas SA and Barclays Capital, the investment banking arm of Barclays Bank Plc.
Firoze Patel, Senior Client Partner at Korn/Ferry International, an MNC headhunting firm, feels that although the mood in investment banks is optimistic for 2012, people are still cautious. “Since the multinational banks are still not out of the woods in the global markets, it is difficult to say whether India will be unaffected. We are expecting some job cuts in selective places and businesses across financial services but are sure these will not be radical,” he adds. According to him, things are not yet buoyant and upbeat in the industry.