Derivatives professionals are expecting many junior staffers to take the brunt of lower bonus payouts this year, with many such workers anticipated to receive marginal sums, if anything at all. One credit derivatives head expects this year to be the first since 1998, in which derivative staffers walk away empty pocketed.
Goldman Sachs will kick start this year's bonus payouts at the end of the month, closely followed by Morgan Stanley and Lehman Brothers. Last year derivatives houses paid out even mediocre performers, thinking the equity markets would pick up and it was easier to pay staff than risk having to buy them back three months later for higher rates, noted another credit derivatives head in New York. "Instead of improving, however, markets have gotten worse and while firms may pay out for their best couple of traders, others are likely to get nothing," he said. Money to pay all areas, including credit, comes from equity and this year's equity markets have been dismal, leaving no money in the bonus pool, he added.
While it is unusual to give staffers nothing, many employees bonuses will be sacrificed to make the best professionals stay at the firm, said a credit head at a major derivatives powerhouse. When the bonus watering hole runs dry, paying out equal bonuses can lead to dissatisfaction all around, so the money tends to be skewed toward one worker at the expense of the other, he explained.
Industry players expect the carnage to be limited to the more junior positions, however, noting that any under performing senior players will have already been laid off. Paul Sorbera, president at headhunting firm Alliance Consulting in New York, said in the wake of large-scale cuts, established professionals can expect to be paid reasonably. Even well regarded players have been laid off in the last year, with many firms offering redundancy packages, which can be written off as a business expense, thus leaving more in the bonus pool to pay off remaining employees, he noted. Rising performers, however, will need to have performed 30% better this year than last in order to receive the same level of remuneration.