The Bonus Dilemma
The Bonus Dilemma
Jon Jacobs
INTRODUCTION
As bonus time looms, the financial services industry around the world faces an unprecedented situation of government financial participation and intense political scrutiny. Both 2008 compensation and the pay paradigm for future years are being reshaped under this spotlight.
This White Paper focuses on public relations aspects of the dilemma confronting U.S. investment banks over reformulating compensation – both near-term and long-term, from the C-suite to the operations staff. Due to recent and ongoing injections of taxpayer funds, decisions that traditionally aimed to balance employee retention needs with budgetary constraints must now also weigh the interests of a daunting array of stakeholders, including Congress, the U.S. Treasury, the news media, and the taxpaying public. Meanwhile, rivals both traditional (other bank holding companies) and non-traditional (boutique and mid-market investment banks and alternative investment firms) are waiting in the wings, eyeing opportunities to poach star contributors. Broad reforms in compensation models are in store for 2009 and beyond. The direction of change is suggested by UBS 's newly announced pay paradigm for its senior ranks, which follows recommendations issued earlier this year by a group of global bank leaders and regulators. The new paradigm aims to discourage excessive risk-taking and better align employee incentives with shareholder interests.
THE CHALLENGE
During the second half of 2008, the financial and legal landscape of American investment banking underwent changes that threaten to obsolete the industry 's traditional compensation model, in which most of employees ' cash compensation was determined and paid close to year-end. The major transformative influences are:
1. Government capital injections into a range of financial institutions under the banner of the Emergency
Economic Stabilization Act (EESA) and its Troubled Asset Relief Program
Jon Jacobs
INTRODUCTION
As bonus time looms, the financial services industry around the world faces an unprecedented situation of government financial participation and intense political scrutiny. Both 2008 compensation and the pay paradigm for future years are being reshaped under this spotlight.
This White Paper focuses on public relations aspects of the dilemma confronting U.S. investment banks over reformulating compensation – both near-term and long-term, from the C-suite to the operations staff. Due to recent and ongoing injections of taxpayer funds, decisions that traditionally aimed to balance employee retention needs with budgetary constraints must now also weigh the interests of a daunting array of stakeholders, including Congress, the U.S. Treasury, the news media, and the taxpaying public. Meanwhile, rivals both traditional (other bank holding companies) and non-traditional (boutique and mid-market investment banks and alternative investment firms) are waiting in the wings, eyeing opportunities to poach star contributors. Broad reforms in compensation models are in store for 2009 and beyond. The direction of change is suggested by UBS 's newly announced pay paradigm for its senior ranks, which follows recommendations issued earlier this year by a group of global bank leaders and regulators. The new paradigm aims to discourage excessive risk-taking and better align employee incentives with shareholder interests.
THE CHALLENGE
During the second half of 2008, the financial and legal landscape of American investment banking underwent changes that threaten to obsolete the industry 's traditional compensation model, in which most of employees ' cash compensation was determined and paid close to year-end. The major transformative influences are:
1. Government capital injections into a range of financial institutions under the banner of the Emergency
Economic Stabilization Act (EESA) and its Troubled Asset Relief Program