This is the time of year when the financial press writes their feverish takes on what they call the “bonus season.” This year, it will feature brutality:

These articles tell a bleak narrative of consecutive years of anaemic revenue generation, sluggish deal flow, and low personnel attrition, heralding an impending compensation cycle of Torquemada-like cruelty.

Even stripping away the hyperbole, these articles chime with what Alphaville has been hearing. Outside the small cohort of restructuring advisers, overall pay will probably be lower for most bankers for the second straight year. Some are in for a rude awakening, as their bonuses will pale by comparison with those doled out by Taylor Swift to her crew (then again, her roadies have had a much better performance year and don’t have the luxury of hybrid working).

All that said, bonuses don’t carry quite the same make-or-break financial importance that they used to. Following the financial crisis, banks ratcheted up fixed compensation, paying much higher salaries — and, in Europe, introducing “role-based allowances” for “material risk takers” to get around the bonus cap. Moreover, a big chunk of big bonuses consists of restricted stock vesting over three to five years — and at least seven years for UK-based “Senior Managers”. As bank share prices have slumped, bounteous share grants awarded for a banner 2021 year now promise a more measly pay-off. Higher fixed pay also means that a “doughnut” — although never a good signal — may not be quite the dunkin’ it used to be. In the past, a zero bonus was a near-certain prelude to leaving the firm, voluntarily or not. But that’s not so much the case now. In Europe some managing directors earn over seven figures in salary and allowances, and even in the US or Asia many will pocket mid-to-high six figures in wages. It still hurts to receive no bonus, but, as Detective Frank Drebin says, “not as much as jumping on a bicycle with the seat missing”. Still, a lower overall compensation pool generally hits senior bankers the hardest. If the pool sees a single-digit percentage decrease, it implies a double-digit compensation decline for the average managing director, because it is difficult to cut junior and mid-level remuneration versus the previous year. 

All of this means that bonus day is a far more humdrum affair than it used to be. When I first started in the 1990s, bankers eagerly anticipated bonus announcement day like pagans counting down the days to the annual harvest festival. It held transcendental significance: your “number” not only determined the vast majority of your full-year compensation but also summed up what you were deemed to be worth. As a rookie banker, I witnessed epic displays of jubilation and exultation, as well as tears and tantrums, from ostensibly grown-up bankers. Those days are (mostly) long gone. A bonus today is in most cases just another spreadsheet entry. Bank bigwigs can shuffle money from one Excel cell to another, but they don’t have much room to manoeuvre in an era of lower-for-longer revenue. Bankers hoping for a blockbuster bonus will just have to shake it off for another year.