Bonus Season and the Counteroffer

It’s that time of year again but, if the dismal indications emerging left, right and centre would have us believe, this will be one of the worst years for bonus compensation for some time. Executive management across the private wealth industry is engaged – where viable – in calculating numbers designed to somehow recognise their top performers, while simultaneously trying to take into account losses sustained elsewhere in the business. This is an exercise perhaps designed to depress everyone.

In a number of widely-publicised cases, this will effectively mean a zero bonus, even for strong performers. Given the paucity of positive stories, I suspect very few people will feel satisfied with the discretionary numbers presented to them at the end of 1Q12. This time around, however, it would be churlish of those on the receiving end of bonus cutbacks to feel any resentment towards their direct line management, as has potentially been the case in previous years. In the past, carving up the bonus pool did tend to allow for some elements of favouritism, outside of those few institutions still paying their staff on a formula basis. Now the austerity measures can be traced to far bigger events, several times removed from the bankers themselves. Rogue traders, Financial Services Authority (FSA) fines are just a couple of the events which have shaped the environment going into bonus season.

All the foregoing notwithstanding, two things are true. First, deals will be struck to retain key players, even at the expense of others equally deserving. As to who is a key player isn’t as cut and dried as you might think. It’s not just about massive new money numbers or revenue figures, but sometimes as nebulous as who has significant internal influence. Second, despite a very flat year, a good number of institutions still have robust hiring targets to hit for 2012, thus a not inconsiderable number of bankers have already sealed deals with competitor firms and are waiting for the moment the bonus payment hits their bank account before asking for a meeting with their line management.

The Counteroffer

More often than not, this meeting will result in management extending a counteroffer. What to do in this case? Clearly the offer of increased base salary, a hike in responsibilities and perhaps a new corporate title is very tempting, particularly if it means not having to move an inch. Keep your colleagues, your comfortable working environment, your familiar surroundings and your regular commute, all for more money. You would be mad not to, right?

Wrong. If you are considering resigning at the end of next month, you should consider the following points and be prepared for the counteroffer:

  1. Look at why you considered making a move in the first place. Are those issues going to disappear with the addition of a new title? Chances are they won’t, and you will be back to square one in six months, but without the new opportunity you currently have.
  2. If your firm is suddenly willing to offer extensive revised compensation, then they clearly consider you worth it. Why has it taken your resignation to bring this to the table?
  3. Where is the money for the counteroffer coming from? Chances are there will be no promotion for you next year. It may even impact next year’s bonus.
  4. Management now has you earmarked as unhappy and your commitment to the firm in the long term has been reassessed. This opinion will not change and will likely affect your future opportunities for promotion within the firm.
  5. We are headed into further tough times. When business lines are asked to cut back, the people with inflated salaries and a perceived lack of commitment will be the first to go.
  6. Regardless of the circumstances, a counteroffer is often made in order to give management more time to prepare for your replacement. The following six months will likely be spent in securing your client relationships and portfolios and you may be asked to leave the company just at the point when you thought you had secured a better position.

In summary, accepting a counteroffer is, essentially, second-guessing yourself and saying that you can be bought. The firm you had agreed to join will not maintain their offer to you, and the firm you stay with will doubt your loyalty. Considering what a great position you were in before you accepted – moving on from a successful tenure with one firm to a great new opportunity with another – is it really worth it?

It’s widely bandied around that the cost of replacing a senior person is three times their salary. While I’m not sure of the accuracy of that assertion, it is indubitably more cost effective to keep someone on a mildly increased salary than to replace them. Thus managers are given quite a bit of leeway in terms of what they can put on the table when it comes to this kind of discussion.

Management Perspective

Given the doom and gloom scenarios being put about by both the financial press – ostensibly based on leaked internal memoranda – and the banks themselves, it will be very interesting to observe precisely how many resignations are met with stiff resistance this year.

Taking management’s side for a moment, in times when costs have to be kept down there’s clearly a difficult decision to be made when faced with a high performer who wants to part company with your team. Do you let them go, with all the potential attendant issues around client retention and team morale, but simultaneously lowering your headcount costs? Or do you counter their offer, knowing full well that they’re already dissatisfied – probably for reasons other than remuneration – and you may well lose them in short order anyway?

Whichever side of that line you are, February and March are sure to be very interesting times.

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