Europe`s Banks Brace For Bonus Backlash

In boom times a junior analyst in London might expect a 75,000 pound end-of-year payout on top of basic pay of 50,000 pounds.

Europe's banks are facing a mounting backlash against plans to pay staff bonuses, with shareholders, politicians and taxpayers angry that some will still get seven-figure payouts after a calamitous year.

The issue is most acute for banks that have taken government help to carry them through the financial crisis, such as Royal Bank of Scotland in the UK or UBS in Switzerland.

Bonuses for 2008 will drop, probably by at least half across the industry, but banks say some payouts are merited in areas that have performed well.

But for taxpayers who have seen billions of pounds or euros injected into banks, the bonuses are unacceptable.

"As a taxpayer and shareholder I find this outrageous. We hear this continual bleating about retaining the best people," was one reader's comment on the Times Online website, and it was typical of many posted on UK newspapers' sites. Some threatened to close their accounts at any banks that pay bonuses.

Banks acknowledge the issue is emotive, but say some payouts are needed to ensure talented staff don't leave so they can repay government funds as quickly as possible.

"If you want to keep your best people, you need to reward them for what they've done, and that means ... not reducing their bonus by too much," said Richard Madgwick of financial recruiters Hudson in London.

But individual payouts will vary more widely than ever. There will be $1 million payouts for some staff in the best performing businesses, such as foreign exchange and commodities, but a "doughnut", or zero, for those in hard-hit divisions.

Average performers can expect to get next to nothing as the fear of losing them to a rival has faded.

"The bottom line is that many workers in the financial industry are grateful to still be employed," said Andrew Haywood, employment lawyer at Dawsons LLP.

Wall Street firms slashed cash bonuses for New York City employees by 44 percent in 2008 to $18.4 billion, according to an official report. London's City bonus pool will likely fall by 60 percent, industry insiders say. That would take it down to about 3.6 billion pounds ($5.3 billion), according to an estimate.

FROM HERO TO ZERO

U.S. banks kicked off the bonus season in December, while most European banks tell staff of their payouts in February.

Banks have already started changing the way they remunerate staff, including paying more in shares or locking in bonuses for a longer period.

But some bankers are guaranteed bonuses as part of their contract. Another problem is that the variable bonus is often the lion's share of overall pay.

In boom times a junior analyst in London might expect a 75,000 pound end-of-year payout on top of basic pay of 50,000 pounds.

"The reality is many bankers do not budget with their base salary in mind but with a plan for their total compensation," said Monique Hansen, the founder of financial services consultancy Palatine Partners.

She added that banks should consider pay structures at law, accounting and consulting firms, which might pay a larger base salary, with a bonus calculated as a percentage, rather than a multiple of that basic.