Bank bonuses expected to balloon amid surge in deals, fierce competition for talent

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Year-end bonuses on Bay Street are expected to balloon by as much as 20 per cent this December – and more in some cases – as financial institutions look to head off fierce competition for talent by boosting payouts after a year of frenzied deal-making.

The capital markets have been on a hot streak, even when compared with the robust year driven by chaotic activity in 2020. In particular, bankers who worked on mergers and acquisitions, equity issuances and initial public offerings this year are expected to be handsomely rewarded.

At the same time, employers are trying to stem an industrywide wave of attrition that has more bankers than usual fleeing the sector or joining other shops for more senior roles. That has made retaining top talent an increasing challenge for senior leaders at banks and other financial institutions, and boosting pay is still seen as a key tool to reduce work-force churn.

“If ever there were a year to pay your top people, this is it,” said Adam Dean, founder of Dean Executive Search, a financial services recruitment firm.

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“We expect that the bonus pools will be up somewhere between 10 to 20 per cent,” he said. “And there’s an expectation amongst the bankers themselves ... that it’ll be even higher than that.”

The Big Six banks accrued a combined $14.6-billion for variable or performance-based compensation through the first three quarters of their fiscal 2021, which ended July 31, according to company filings. Those funds, which are earmarked for paying bonuses that are mostly awarded in December after the banks’ fiscal year ends on Oct. 31, were up between 15 per cent and 20 per cent at four major banks, and 32 per cent at National Bank of Canada. By comparison, the Big Six set aside $16.2-billion for performance-based compensation in the entire 2020 fiscal year, a 3.9-per-cent increase from 2019.

Banks will disclose their total variable compensation for the 2021 fiscal year when they report their fourth-quarter earnings next week.

The largest payouts this year may go to Canada-based employees at multinational firms – especially large U.S. banks – and boutique shops, according to Bill Vlaad, CEO of the Toronto-based executive search firm Vlaad and Co. He says multinational players benefit from being selective and only working on the biggest deals in the Canadian market, while for bankers at boutique firms, an “eat what you kill” model offers significant upside in a bull market.

Rainmaking aside, many bankers feel the COVID-19 pandemic has made working conditions worse, with the most glamorous and socially satisfying aspects of the job largely eliminated by lockdowns and travel restrictions, compounded by long work hours often spent isolated at home offices.

In response, banks have boosted pay for employees at all career levels. Around May and June, most banks increased base salaries for junior investment bankers, raising pay for analysts by 10 per cent to 15 per cent and associates at banks by 25 per cent to 30 per cent, according to Mr. Vlaad. Some junior employees are also being promoted more quickly, rising to the next rank in two years rather than the customary three.

For example, in early June, National Bank increased the typical base pay for analysts to $95,000 from $75,000, for associates to $135,000 from $100,000, and for vice-presidents to $150,000 from $125,000, according to an internal document reviewed by The Globe and Mail.

At senior levels, executive vice-presidents and senior vice-presidents are in some cases exceeding their targets for variable pay by two to 2½ times, said Michael Henry, managing partner at executive search firm Massey Henry. Compared with bonuses paid in recent years, “it’s a significant step up.”

Even so, increased compensation may not be enough to avoid high attrition rates at big banks. Search firms have been inundated with work and could get even busier in the coming months. as search professionals are anticipating a flurry of job moves after employees at banks and financial services companies collect their cheques.

“I think you’ll see the fallout postpayout,” Mr. Henry said.

While some bankers have recently left financial services altogether, others have left for promotions at rival firms or embraced roles with more authority and flexibility. And some are shifting to smaller and medium-sized companies where they can be more influential.

Mr. Dean has seen a number of U.S. investment banks poach Canadian bankers, who often earn less than their American counterparts. And Mr. Vlaad has noticed a trend of sell-side bankers switching to the buy side and joining private equity firms. He also sees Big Six bankers being lured to the boutiques, which, once upon a time, were a tough sell.

“Five years ago, hiring for a boutique in Toronto was hard,” he said. “It’s easier now than it has been because they’re making so much money.”

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