Famously generous with their bonuses but hard hit by the sub-prime mortgage crises, big investment banks are facing a dilemma this year---to reward or not to reward. Can the big banks get away with handing out chunky bonuses in the face of ailing profits? For more in this issue of end-of-year bonuses, I'm joined by Andrew Oliver. He is the managing director of executive search company Profile Search and Selection based right here in Hong Kong.

Welcome to the program. End-of-the-year bonuses, it's a time fast approaching. What should we expect?

Well, I think the short answer is that at the end of the year banks are gonna pay out enormous amounts of money. However, the subtext here is a little more complicated. These are vast institutions that rely on very, very diverse revenue streams by division and geography. And for some of the parts of the banks, they've had to start the year again in 2007.

So how big a bonus will be handed out?

Well, that's a very interesting question. I think it depends on where you are working and I suppose geographically and by division and also depends on whether you are a peak performer or you are not. I think this year we are gonna see some areas, when I say areas I mean geographies hit harder than others. And we're gonna see some divisions hit harder than others. But next year the banks are still gonna make money. They're still gonna carry and hold on to their peak performers. So people will get paid regardless.

So how much is the cost to hold on to a peak performer?

Well, I think the top 10, 15% regardless of the division area, will be paid at least flat or maybe up from last year. However, I think we're gonna see a polarization of bonuses this year. Peak performers will get paid because they've got to look at 2008.

Give me a number, Andrew. Because I read some place, it's an average of 200,000 US dollars. Does that sound right?

Well, I mean the numbers that come out, you know, the numbers that come out are in my opinion sometimes a little bit misleading. Because you take, you know vast organizations, then divide the number by the number of employees. I think the people who are making the money, the key producers, within the key front line roles will still get paid.

And they will get paid how much as a bonus?

Well, I think if you look in percentage terms in 2006, that's probably a better indication. And I would say peak performers will still get paid more than they got paid last year.

You are still not giving me a concrete number but they will still get paid. They will still get a big bonus. And this year was a notoriously bad year for the financial sector. How can banks justify, handing out such big bonuses during such a terrible year?

Well, looking in the context, it's not been a terrible year. It's been a terrible few months. It's been a fairly terrible few months for certain part of very large institutions. Parts of the businesses have made a lot more money than they made last year. And part of the geographies around the world had made a lot more money than they made last year.

So in terms of where the bonuses will come from, certain sectors of the bank will probably end up paying out the bonuses for the other players in the bank.

Yes, there's always gonna be a little bit of, there’s always gonna be a little bit of cross-divisional support. However, I think you know, we'll see, you know, certain divisions that have been hit very hard by the sub-prime issues. Yes,they're gonna get hit hard in their bonuses. But yes, you know, certain divisions such as equities divisions or corporate finance divisions that have made a lot of fees and underwriting in the early part of this year will in some way support parts of the businesses that have been hit.

But in a year, there have been layoffs, and I'm hearing of, of more layoffs to come. It's really an employer's market. Why is it even necessary to pay out big bonuses?

Well, the people who run the organizations will have to run amid a commercial, in a commercial manner. They need to look at, looking after the people that're gonna make the money in 2008. Someone said to me it's sometimes very difficult to say, is it a retrospective reward for what you did last year or is it a reward for what you may do next year.

That's the question. Andrew Oliver, thank you very much for joining us.

Thank you.

Notes:

retrospective: Applying to or influencing the past