The big bonus debate

My colleague Sam Jones wants our company to sponsor the premiere of Wall Street 2: Money Never Sleeps later this year and invite a lot of our friends from the banking world. Sam thinks headhunters are well associated with the world of big money and bigger bonuses. I don't know if the association makes us look good. But, like the movie, big bonuses are back. Only now they are bigger.

When I began in this business, the movie Wall Street had just been released. The book Predators Ball about Mike Milken at Drexel Burnham Lambert was released two years after that. In 1987, there were less than 10 bankers in Asia that took home a seven-figure US dollar pay package. Today, an eight-figure annual pay package is not nearly as rare as the seven figure was back then.

In the time that has passed since those days, we have had several bubbles and financial meltdowns, each bigger than the last. But when the dust settles, the bankers' ever-growing bonuses rise again like the proverbial phoenix from the ashes.

I have noticed that the more things change in the financial markets, the more they remain the same. In the old days the big tickets were limited to originators in the investment bank. Then came the China bankers.

Today the really big tickets are in "global markets" ... the space that has trading and distribution of a full range of asset classes.

At the top end an Asia head of global markets took home something close to $20 million. Many of his contemporaries had to settle within the range of $12 million to $16 million.

Heads of trading (in various markets and assets classes) this past cycle scored in the range of $6 million to $9 million.

With the exception of China origination, the new biggies are in structuring, trading and distribution of financial products.

Many question whether the phenomenon of bankers' big bonuses is obscene in this day and age, and if regulation can make it go away. But isn't it only fair (and sustainable) to reward the banker who invests his blood and sweat building a business for the bank's shareholders? I do know that unfairly compensated talent is always bid away!

In two and a half decades of helping financial talent realise its potential, I have only one certainty -- really great bankers are few and far between. Markets rise and fall, as we have witnessed so often, but the rarity of great talent remains. If a banker delivers huge gains for his employer or even shows the promise and potential of huge gains he will command and receive shareholder-like returns in his compensation packet.

I often get asked to help individuals calculate their market value. My calculation is always a mixture of individual contribution, capability, scarcity of competitive talent and presentability. Yes, appearances still matter at the margin.

Banks pay their super stars as little as they can get away with without losing them, while the individuals consistently have to push hard to get themselves marked to market. It is an eternal struggle.

A great banker envisions, innovates and delivers fantastic sums for the bank. Should there not be a direct correlation between his bonus and the returns he delivers?

While the bonus pools for the biggest institutions are all in the billions of dollars, their distribution still has a lot of 'black box' arbitrariness to them.
 
Enter the headhunters.

Identifying the next big performer in a given asset class or identifying the next best platform for that great performer is what brings light to the darkness of the bonus pool.

What you (the talent) made last year is not an obstacle. What you will earn in your new position depends entirely on current market realities, your revenue generating potential, the rarity of your talent and the desire of the bidding bank to be tops in your space.

No Sam, we can't sponsor Wall Street 2. Really great bankers aren't Gordon Gekko. The second highest paid banker in Asia gets up at 4.30am every morning. He plans his day while running for an hour on the treadmill. He finds incredible opportunities in the opaque emerging markets of Asia, bringing untold wealth to the shareholders of his bank. I think he earns every penny that they pay him. 

Ranjan Marwah has been a financial headhunter in Asia since 1987 and the go-to guy for senior positions. He has just set up a new firm: Capital Access Arbitraging Human Potential.