Your bonus for pounds 1bn: the high-flyers find their niche

Many City workers will get a redundancy notice rather than a fat cheque, but the top talent will prosper, says Liza Roberts
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The Independent Online
This YEAR the City of London's most valuable workers will take home about pounds 1bn in bonuses - about 30 per cent more than they did last year - even after a wave of industry consolidation and recent turmoil in world financial markets. "Optimism is high. It's a very good time to be in the City right now," said Simon Gee, manager for Robert Half International, an executive search firm.

The overall strength of the markets, together with a shortage of qualified people and the emergence of new specialist areas means that City bonuses and base salaries are rising and - if the markets continue their upward climb - will probably keep growing for at least the next few years, said Robert Flohr, managing partner at Korn/Ferry International.

At the same time, half a dozen recent industry mergers mean thousands of City employees face finding a redundancy notice, not a bonus cheque, in the inter-office mail. The merger between Swiss Bank Corp and Union Bank of Switzerland, announced this month, will result in the elimination of 3,000 London jobs, and the sales of the investment banking units of National Westminster Bank and Barclays are expected to add a few hundred more to the jobless.

"There's no question about the fact that people are going to become obsolete. In many ways [mergers] force companies to make decisions they should have made two or three years ago," said Charles Sweet, President of AT Kearney Executive Search.

Still, while jobs will be lost and expenses curtailed, the net result of the wave of industry transactions has been to increase year-end payouts by generating fee income for advisers - about $2bn this year, according to Acquisitions Monthly magazine - and guaranteed bonuses for many newly transferred employees.

"The reality is that good people always cost," Mr Flohr said. The difference this year, he said, is that the spread between the "really big earners" and the "pretty big earners" is wider than before, with the big money increasingly concentrated in the hands of a few. "There will be a weeding- out. The people on the margins will be concerned ... bonuses will be greatly awarding the people who are leading and building businesses," he said. "They've got to pay off guarantees and make the best people happy." That includes those who work in emerging markets who racked up big losses after Asian stock markets tumbled in October and November.

In fact, people working in emerging markets are likely to deposit the fattest cheques, several head hunters said. "A smart institution is not going to underpay its emerging markets people. If they don't compensate the people taking the risk - who have had a good year overall - who are they going to get to sit on their Asia desk again?" asked Flohr. "If you're committed to the business, you've got to pay through good times and bad."

Still, the tendency to pay large lump sums is one regulators would prefer to see changed. "The concern is not whether bonuses are big or small, but whether the way you remunerate people leads to corruption of internal controls," said Peter Parker, spokesman for the newly-formed City regulator, the Financial Services Authority.

The Bank of England has raised the question of whether the promise of stratospheric one-time payouts encourages traders to take risks they otherwise wouldn't. And in a set of draft industry guidelines published in July, the Securities and Futures Authority said regulated firms should "design, build, and use operating arrangements [including remuneration and bonus or other incentive systems] with a view to ensuring that they cannot corrupt the integrity of the firm, or its systems and controls."

That doesn't mean people are going to stop making lots of money, and most of it in one big check, headhunters said.

Other than those in emerging markets, people likely to receive seven- figure cheques this year are mergers advisers, having racked up a record number of transactions this year, those working on new issues in hot industries like telecommunications, experienced senior analysts for growing industries, whose numbers are in short supply, people working in esoteric areas like emerging market high-yield debt and credit derivatives, and asset managers, according to head hunters.

"The competition for talented people is hot and considerable," Sweet said. "The demand for services is on a growth curve, and while business schools are churning out people, we're not yet at an equilibrium." Mr Sweet doesn't predict the numbers of graduates will meet the needs of employers for another five years yet.

Information technology experts - who typically work on a contract basis for the big financial services firms - are also being lured to stay on with big guaranteed bonuses, said Mr Sweet. "In the run-up to 2000, those guys are making a lot of money."

Another factor driving City bonuses ever higher is the growing equilibrium between pay scales in New York and London, head hunters said. London has emerged as the financial capital of a uniting Europe, at the same time that US firms are bolstering their staff here. "All of these Americans come over here, and they don't do it just to go sightseeing," Flohr said.

Estate agents welcome the influx. "It's how a lot of our market is driven," said Peter Rollings, manager of Foxtons' South Kensington sales and lettings office. "I'm very expectant of lots of sales happening in the New Year. There's now a lot of City money sloshing around."