The new era of banker bonuses

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The new era of banker bonuses

There is a very popular myth that bankers are indeed very wealthy and well-situated people. All that is believed to come from the bonuses they are supposed to be getting for every major success. Of course, that implies that the better banker you are, the better bonuses you get, ergo your finances grow. That is how a lot of people perceive bankers and a massive part in building that narrative played was played by Hollywood, which loves the zero-to-hero stories.

There of course is always a grain of truth in it, but in times of yet another financial crisis, caused by a global pandemic, should we be expecting some changes in the bonuses the bankers are awarded? Disruptions Banking’s Andy Samu tries to answer that question in his brilliant piece.

The new direction for the financial institutions

Carefulness and lack of recklessness is something that has actually been put on the agenda a while ago, as we remember the words of Laurence Fink, BlackRock’s Chairman, and CEO. In 2018, he brought up the topic of CEO pays and pointed out that the world needs companies to serve some greater purpose. He noticed that financial performance is not the only motive for firms anymore, as they should focus more on contributing to society, and his words have paved a way for a new approach, much needed in pandemic times.

Not long ago – just after the virus broke out – Andrea Enria, the ECB’s Chairman, has formulated what seems to be the motto for the nearest future of banking. He stressed how important the “extreme moderation” will be in the months and years to come. This approach seems to have been highly regarded, and we are seeing less of the huge banker bonuses, as the European Central Bank even considers stepping in, if they notice someone paying them out.

This brings us to the completely new triumvirate of goals and priorities that seem to have been already carved in stone. These are:

  • tackling the climate crisis,
  • supporting diversity,
  • making a generally positive impact on the world itself.

How different is that to the blind strive for financial gains that would be stereotypically considered as the only priority of the banking world? And this change spreads worldwide, as we can see different signs of the triumvirate’s influence on the policies all across the globe. For example, Bank of England has expressed its expectations for the English companies to commit to the restraint when it comes to dividends payments and other forms of distribution of the capital and senior pays. They even urged the companies to provide a special letter to the HM Treasury with the declaration of that. Keep in mind, that this applies solely to the entities using the Government’s loans, but nonetheless it is a great step in the new direction.

Bonuses are still high in some sectors

A lot of the concerns regarding this topic is still to be resolved, especially in the field of investment banking, where bonuses are still high. That is still more accepted, as investments sector is believed to take more risks, which could justify higher bonuses’ rates.

As indicated in the forementioned Disruption Banking piece, in 2017 Goldman Sachs was looked upon during the Financial Crisis, as it behaved in an unlikely way, deciding not to solve AIG’s problems. This showed how some financial elites would care about finances only, abandoning the insurance industry. This is viewed as contrary to the new agenda of contributing to the society.

The UK’s department’s head of Goldman Sachs was later questioned heavily by the UK Parliament’s Select Committee during the Phillip Green’s investigation. It of course wasn’t the reason of Michael Sherwood’s departure from Goldman Sach’s structures, but it surely wasn’t an asset of his.

He is said to be worth £195 million and his position as one of the highest-remunerated bankers in his country, but that number doesn’t impress so much, when compared to Michael Platt’s £4.69billion, who has witnessed a significant rise in his net worth during the pandemic.

Other entity which has had impressive results at the beginning of 2020 is JPMorgan. It’s CFO, Joanna Pieprzak would normally award big bonuses to her Fixed Income Team, which helped JPMorgan amass quite a fortune in the first months of 2020. Jason Sippel, the global head of equities at JPMorgan, is one of the fathers of the success, as he was responsible for the Team’s work in the process of delivering impressive results.

In the new agenda, both Pieprzak and Sippel have to find a new way to motivate their team and award them for the results, as they can’t really pay out big bonuses anymore, especially with the prospects of 30% drop of bonuses in the nearest future.

To read more exciting takes on the banker bonuses in 2020, visit the original Andy Samu’s piece that is available on the Disruption Banking website. To access the article, enter the following link: https://disruptionbanking.com/2020/05/21/extreme-moderation-or-restraint-how-will-bankers-bonuses-look-in-2020/

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