The practice of promising bank employees a generous bonus before they've ever even made a trade is making a comeback on Wall Street, even as the financial industry is laying off thousands.
Banks boosted their use of one-year "guaranteed bonuses" for new hires in 2010 according to The Institute for International Finance, an industry advocacy group. The practice is often used in competitive hiring markets to lure potential new employees, and the banking industry faced "senior staff hiring pressures" in 2010, the report found.
Even as Wall Street aims to lure new hires by promising them a bonus before they've even made a trade for the company, the industry is coping with large-scale layoffs. Bank of America announced last month that it plans cut 30,000 employees in an aim to slash $5 billion per year. Barclays and UBS also announced that they would axe thousands of employees.
The practice of guaranteeing star employees a bonus regardless of performance came under scrutiny in the wake of the financial crisis as the American public and politicians criticized pay packages for Wall Street firms that received tax payer money. Kenneth Feinberg, President Barack Obama's pay czar, told bank executives privately to get rid of guaranteed bonuses for high earners before submitting their pay plans for his review in 2009, The New York Times reported at the time.
Offering guaranteed bonuses has also come under fire outside of the U.S. In France, officials banned the practice in November 2009 except for when hiring new employees, CNNMoney reports. Even in the case of new employees the guarantees must be limited to one year.
Many banks had moved away from the guaranteed bonuses as they stopped adding jobs in the immediate aftermath of the financial crisis, according to Bloomberg. But when hiring picked up in the spring of 2010, the banks began to offer the guarantees again to lure potential top employees.
The return of the practice indicates that even as most Americans are grappling with a sluggish recovery, Wall Street is still attached to its bonus-driven culture. The majority of financial professionals said they expect to receive a bonus this year that’s the same or higher than what they got in 2010, according to a survey from eFinancialCareers.com.
The bonus expectations likely don't sit well with Americans not working in the financial sector. Eight in ten Americans say Wall Street bankers are greedy and 77 percent of Americans say they're overpaid, according to a CNN/ORC International poll released Monday. Frustration with the financial industry's high profit motivated culture is part of what's fueling resentment among Occupy Wall Street protesters camped out in Zuccotti Park and others demonstrating around the world.Still, Wall Street bonuses were down 9 percent in 2010 as banks shifted their pay packages to boost base salaries and deferred compensation in response to financial reform regulations that aimed to curb excessive bonuses.