City bonuses 'set to halve' but executive pay rises by a quarter

Investment bankers are bracing themselves for another grim bonus season, with hundreds set to receive no payout at all and many in research and mergers and acquisitions in line for only half of last year's bonus, according to a report published yesterday.

The City headhunters Armstrong International, which compiled the survey, predicted most investment bankers whose performance is ranked in the bottom 20 per cent of the total workforce are unlikely to get a bonus when the payouts are announced in December.

On average, those in equity research and trading and M&A will on see bonuses cut 50 per cent, which follows a 50 per cent cut last year, Armstrong said. The company forecast analysts at smaller investment banks such as ABN Amro, HSBC and ING Barings will fare worse than those in the bulge bracket of Merrill Lynch, Morgan Stanley and Goldman Sachs.

Martin Armstrong, a partner at Armstrong, said: "The marginal players have already reduced bonuses and they are likely to be even more depleted because they have cut their investment in investment banking."

Bankers at HSBC will however do better than last year, when the bank decided to freeze most bonuses, leading to an exodus of employees to rivals. It is expected to find money for key staff this year.

An employee at one of the major banks said: "Morale is pretty low. Plenty of people are thinking about leaving and setting up their own boutiques."

The Armstrong report highlights the likelihood of a particularly stark difference between payouts this year, depending on what area of investment banking employees work in. Those in credit derivatives and trading based on interest rate movements are set to receive the same bonus as last year or one cut only by about 20 per cent.

A separate survey by Mercer Consulting found that elsewhere in the City, companies are tying executives' pay more closely to performance, but are increasing the total package. Mercer found the average payout this year to executives in the 30 largest UK companies, including bonus and basic salary, rose 26 per cent compared with 2001.