Are you happy with your bonuses?

The employment market in financial services in Hong Kong and China has been fairly moribund since the third quarter of last year, but when it comes to bonuses the picture is more complex: some employees enjoyed a rise; high-earning bankers suffered the worst decreases; and while firms generally managed expectations well, many employees ended up dissatisfied with the size and structure of their bonuses.

A recent survey about 2011 bonuses (e.g. those paid out this year) in Hong Kong and China reveals mixed results. Although 32% of respondents experienced a decrease compared with 2010, a similar proportion (34.1%) enjoyed an increase.So why is this, given the negative job-market sentiment?

Firstly, bonuses take performance into account across the year, and many banks and bankers delivered good results in the first half, before deals and revenues subsequently declined. Secondly, between 2010 and 2011, some employees were promoted to higher job grades, entitling them to a largely share of the bonus pool. Moreover, Asian banks generally had a profitable 2011 and in some cases their bonuses were higher than those of their cost-cutting foreign competitors.

The plethora of different roles in the financial sector also helps to explain the divergence in responses to the year-on-year bonus comparison. In contrast to investment banking, wealth management continued to expand across Asia last year, so private bankers are more likely to have received a bonus increase.

And to put the survey results into context, although the number of respondents with an increase was similar to that claiming a decrease, in the current market most bonus rises are likely to be modest, with reductions usually much larger.

Tough at the top

In an APAC-wide trend, those in the upper base-salary quintile (ie the top 20%) were more prone to report a decline in bonus (47.1%) than those in the bottom quintile (29%).

Top earners are most likely to have earned excessive 2010 bonuses, and with many firms now in a cost-conscious mood, reducing their payments for 2011 is a quick way to reduce expenditure. High salary earners are often in jobs directly tied to company performance, so when markets do badly, like they generally did in late 2011, their bonuses bear the brunt.

Expectations in check

Despite large reductions in payments for some front-office bankers, 51.3% of Hong Kong and China survey respondents said their bonuses either met or exceeded expectations. This is significantly higher than the 37.2% per cent whose bonuses failed to live up to their hopes.

Managing expectations downward in a faltering employment market is difficult because no one instinctively likes to hear about reductions. But many employers have made a reasonable attempt since late last year. Some banks have been telling staff that their “bonus is their job”.

No satisfaction

Only 9.1% of respondents were “very satisfied” with their bonus, while another 31.2% were “somewhat satisfied”. Despite the prior warnings, seeing a low or zero bonus number on paper is never nice, especially if you’ve worked hard throughout the year. It’s also still inherent in many people’s minds that financial services is fast paced and pays good bonuses.

The increased use of deferrals and payments in stock also helps to generate dissatisfaction. Employees are not only worried that they may not be working at the firm when their shares vest, but that the value of those shares may decline over time. Many therefore rate their payments mainly in terms of the cash component.

Bonuses make their mark on the job market

Dissatisfaction isn’t leading to much candidate movement in the first half of 2012, thanks to fewer vacancies and risk-adverse job seekers, who fear being “last in first out”. Recruiters say an increasing number of candidates are even considering leaving the sector. Grinding out 80-hour weeks is no longer so appealing when your bonus has taken a tumble.

In the longer term, however, there are many disgruntled employees in financial services who are generating “pent up demand” for when the market eventually picks up. Firms may not fear retention reprisals this bonus season, but staff who feel they have not been properly rewarded are more likely to move in the future.