At least one major investment bank is weighing the option of freezing bonuses for their junior investment banking jobs, a move that could catch on if other major banks follow their lead.
Credit Suisse is reportedly considering suspending the automatic bonuses doled out each year to analysts, associates and some vice presidents, according to a story in Businessweek. These staff will still get their regular annual salaries, but bonuses may be lowered to keep total pay flat from the year before.
Industry insiders are watching to see if other big banks such as Goldman Sachs or JPMorgan Chase follow suit. If they do, it could mark a turning point on the Street. But if not, it could open up Credit Suisse to large-scale defections by junior bankers who are able to get higher pay packages elsewhere.
Junior-level bankers typically comprise about three quarters of a firm’s workforce. They often start with base salaries in the $200,000 range, and can expect increases of 15 to 20 percent each year. An investment banker often spends three to four years as an analyst or associate, then three more years as a vice president before being named as a director. Top-producing vice presidents in their third year can earn in the neighborhood of $600,000 to $700,000 in total compensation, according to the article.
A plunge in trading revenue and European debt worries have put a crimp in profits for the big banks, thus leading to more strategies for cutting costs. However, limiting pay among junior bankers could be a risky move since juniors tend to talk more with peers and former classmates and compare notes. The news of lower entry-level pay at one firm can put it at a disadvantage recruiting new employees.
Many of the big U.S. banks will inform their employees about salaries and total compensation by the end of January. New compensation schemes would go into effect at the beginning of February. With earnings estimates slashed by a downturn in trading revenues, the banks are eyeing each other’s compensation plans carefully this month before determining their next step.
What’s your opinion? Do you think the inevitable downward pressure on total compensation, especially for more junior employees, is going to put a damper on young people pursuing investment banking jobs? Add your comments below.