The recent implementation of a cap on bonuses paid out to bankers based in the European Union (EU) is expected to reshape - from a talent perspective - the banking sector in Asia.
Coming into force on January 1 this year, the new regime bars banks from paying "risk-taking" staff bonuses worth more than their salaries, unless they are approved by shareholders - in which case bonuses may be up to twice the salary amount. Under the new rules, bankers who earn more than €500,000 (HK$5.3 million) a year will need regulatory approval to be exempt from the cap.
While touted as a way to suppress irresponsible risk-taking of the type that precipitated the 2008 global financial crisis, the cap has been under fire over fears that it would damage competitiveness and erode the link between performance and pay.
The cap has drawn special concern among banks in the UK, since staff at these banks will be subject to the cap wherever they are in the world. Employees of US and Asian banks, meanwhile, would only fall under the restrictions if they work in the EU.
A number of banks have said that they would seek out ways to circumvent the tougher EU bonus rules, which will apply for the first time to awards given in 2015, based on this year's performance. Goldman Sachs is reportedly considering a so-called "role-based" fixed pay for senior staff and traders in Europe, in addition to salaries and bonuses. Other banks such as Barclays and HSBC are also considering handing out large share awards to its top-performing staff.
With the cap coming into force, affected bankers are already taking a hard look at the long-term viability of their jobs, says Marc Baloch, director of the financial services practice at Harvey Nash Executive Search Asia Pacific.
Although the depressed job market has so far limited staff movements, he says, there's no question that talent has been trickling away from EU-regulated banks towards other players such as private equity firms, hedge funds, US and Asian investment banks, and even insurance companies.
"It's not yet the case where we are seeing people moving en masse, but there are signs that the market is shifting," Baloch says. "Across the ASEAN, we're seeing a surge of hiring very senior executives that are lured by all-cash compensation packages, where they are locked into one-, two- or even sometimes three-year contracts."
Baloch adds that at the same time, investment banks appear to be laying off managing-director-grade bankers - whose bonuses can reach up to multiples of eight times their salaries. These banks are replacing them with younger vice-president-grade staff, whose bonuses usually reach 400 per cent. This would make their pay easier to restructure to comply with the new EU rules.
He adds that banks are likely to make better use of equity for compensation, but noted that the effect would be limited. This is because up to two-thirds of bonuses are already offered in stock and many are deferred over a number of years.
