Matthew 5:5 “Blessed are the meek: for they shall inherit the earth”
This week, the European Union decided to cap bank bonuses. Being an alumni of the biggest payer of all – Goldman Sachs – I thought I would describe what it’s like at a City firm on the most important day of the year (for the staff at least).
Lloyd Blankfein, CEO of Goldman Sachs in 2009 may have described himself as just a banker “doing God’s work” but Christian values wouldn’t take you far in the City on bonus day (or any other to be honest).
The Meek Inheriting the Earth? In my experience, the meek get zilch. The biggest payoffs are for the most belligerent and self-promoting. In many areas of the city, it is a team of people that are responsible for generating business and commission and how the pie is split favours the aggressive and bellicose, definitely not the meek (no matter what Blankfein says).
The goal for management is to pay each employee in their “Zone Of Indifference”. Not so much that the employee is happy because then clearly they have been overpaid (it is management’s goal to keep salespeople and traders insecure as then they work harder). But not so little that they are so p***ed off that they call a head hunter. The ZOI therefore has little to do with actual performance and more to do with perceived attitude.
Different city firms also have different ways of calculating bonuses. So when I was at Goldman, it was a mix of the profitability of the firm, the division, the particular desk and supposedly individual performance. I think this is the best model as it does encourage team work.
But this is not usual in the City’s periphery. At interdealer brokers and hedge funds for example the rule is to “Eat What You Kill”. So brokers get anywhere between 30 and 50% of their client commissions after costs – literally these firms charge their brokers for chairs and electricity. And depending on where they work, proprietary traders get a percentage of the profits they generate (but sadly for investors not always the losses).
The most toxic scenario is when a new member of a team has been hired on a fixed compensation fixed year deal, no matter what business he or she brings in. If the revenue is not sufficiently buoyant then the new employee takes a disproportionate share of the desk’s pot, leaving the older more loyal employees on significantly less. You can imagine how toxic this is for a team working 12 hours a day together.
So what is it actually like on the Big Day? Well not surprisingly little work gets done and gossip spreads round the trading floor as fast as a takeover rumour through the market.
The first most important piece of data is the average bonus amount – up or down and by what percentage. Then each individual tries to work out whether their bonus will be more or less than that. Exchange rates are also important if you work for a foreign bank, so there are forex calculations to do too (and if you play in the Big League and have hedged the currency risk on your bonus, there may be some hedging to close out).
The average has normally got round the floor by about 7.30am. Next its play the “who how has done well and who’s been screwed” game. This involves more body language analysis than Joe Navarrro.
The time of the day that you are called in for the interview is also important – being left to the end as the markets close is a very poor sign. And clearly as most dealing lines are taped, there are plenty of whispered mobile phone conversations taking place at the edge of the dealing floor throughout the day. Wives who are desperate to know if they can buy that Gucci dress or book the Christmas get away to Dubai (sexist but sadly true in many cases).
Lunches are hastily arranged to commiserate or celebrate with favoured clients (who if they’re on the buy side dream to be paid as much). And if you get a Big Fat Zero then don’t come back from lunch – spend the afternoon calling headhunters (or just getting wasted).
And then of course there is a level of secrecy that the Freemasons would be proud of. Trying to discover a colleague’s compensation is as difficult as an active fund manager outperforming the index on a statistical and sustained basis (after costs).
I am told things have changed and there are now 360 degree reviews and more analysis and detailed staff appraisals. But in my days, the year’s performance was summarised in one incomprehensible number in a three minute interview. Take the number and leave is mostly the rule (this is not a negotiation unless you hold a current competing job offer).
The tales I know of bonus day: being given a stock bonus but without the paperwork thereby missing the chance to cash in; the first £1mn plus bonus for a trader who had no one to celebrate with (he worked so hard he had no time for a social life); or the analyst who was made redundant on bonus day and got so drunk and disruptive, he had to be escorted from the building.
At the time, I was as wrapped up in the drama as everyone else but years later I can view it as the farce it really is. The Bonus game was not one I played well, but although the Lord did not buy me a Mercedes Benz, Goldman bonuses bought me a house (for which I am eternally grateful).