As the heads of Wall Street's top 28 firms got hauled in front of the New York Federal Reserve Monday and told to toe-the-line on compensation ('or else'), and as Lloyds Bank and Royal Bank of Scotland agreed to a bonus clampdown in the UK, please fear not for bankers - as they are still likely to have the last laugh when it comes to pay.

The New York Post reports that Barclays is thought to be working on a new bonus plan (that could be adopted by many rivals) which provides for maybe as much as 80% of bonuses to be paid in restricted stock, which will vest in 5 years. And UK government bailed-out Lloyds and RBS will not pay cash bonuses this year to any employee who earns more than £39,000 ($63,778). Bonuses will be paid in stock which will vest in 2012. Tough love, eh ? Well, no. Not according to our Highly-Placed Professional (HPP).

HPP says: 'When you pay bonuses in deferred equity, you remove a lot of the transparency. Cash is cash - it's fixed, but stock is a moving feast. And given that these stock awards are being granted at a time when bank share prices are still recovering from multi-year lows, the upside potential is enormous - look out for the outcry when these awards vest, and the public sees how big the bonuses eventually prove to be'.

So, although bankers may well take a short term hit in terms of cash in their pockets, 2009 bonuses are likely to end up the biggest by far, as bank stock prices are only going to go one way in the next 3 - 5 years. 'And there's something else, too', continues our Highly-Placed Professional, 'To compensate employees for the reduced cash component of their bonus, many firms have been busy significantly increasing base salaries (especially for senior staff)'.  

So, all this noise around bonuses will actually translate into bigger bonuses and higher base salaries. Great news for bankers, who, once again, will have the last laugh on pay!.

Reader Comment

'And don't forget, issuing bonuses to staff in restricted stock doesn't necessarily tie them to an organisation. Deferred equity is just another recruitment cost for a hiring firm'.

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