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Ballooning pay and headcount need the flow of deals to support them

The recent arms race over perks and pay has made the investment banking business more brittle

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The capital markets workplace has undergone a radical make-over in recent years. Gone are the endless hours of thankless toil, the sexist banter, the old boys' club. In their place: protected weekends, enhanced compensation and exercise bikes.

These days, you can even do the job sitting on the beach in Málaga.

At least, that’s what the banks were promising yesterday. But it’s a lot easier to swell the ranks and engage in an arms race over pay and perks in a year of record-breaking capital markets activity than it is when an army of analysts is twiddling its thumbs waiting for the next block trade to arrive.

And after the quarter we’ve just experienced, some are expecting reality to catch up pretty quickly.

Of course, a few jaded souls were already predicting what would happen last year.

Investment banking is an inherently cyclical business, which is why paying a large chunk of compensation in bonuses makes sense. In downturns, the variable comp pool simply shrinks.

But as base pay and headcount have ballooned, the whole system has become more brittle. There are fewer levers for management to pull before reaching for the axe.

It seems that the only perk junior bankers were not offered was job security.

Does it have to be this way? Perhaps. Senior management ultimately answers to the shareholders, after all.

But it is worth noting that, while stock analysts always keep a beady eye on the compensation and benefits line of the balance sheet, they tend to do so with a degree of indulgence. Inflation, these days! What can you do?

The one thing that really seems to irk them is ill-defined bonuses in the millions for C-suite officials. Perhaps that’s where reality should bite first.

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