
The End of the Bonus Culture Is Coming to Wall Street? - pseudolus
https://www.bloomberg.com/news/articles/2020-01-13/traders-unlearn-bonus-culture-as-machines-invade-wall-street
======
michalu
No the end of bonus culture is never coming to Wall Street. It sounds nice in
theory and makes for a good headline but it never works in real-life,
particularly for performance oriented jobs like fundraising, sales, etc.

The reason is that when you work in environment that's all about getting more
funds, selling more products it's not a rewarding job like marketing or
software development.

The only rewarding part is making money, scoring deals and beating your other
colleagues, competitors. Other than that, most people hate these jobs. And
even to manage sales teams isn't easy. High-turnover rates, bunch of high-
testosterone jerks ...

I'm talking about finance here. Yes software sales or gym membership sales you
can be a nice consultative sales person who's simply there to maintain the
status quo and benefit from a good product that sells itself.

Turn these jobs into regular consultative sales and you're going belly up.
That's because in wall street you don't simply have a game-changing product
like some Silicon Valley startup - that's solving real need.

There's no difference in what you offer other than how you can win clients on
your side. And most of these clients don't want to deal with average sales
dude ... because they're simply not one of them.

The top traders at the floor in one of my past jobs didn't even sell, they
talked about cars, yachting, girls and played golf and poker with clients.

And yes, everyone gets bonuses in investment banks, but it's really the
commissions they earn and dealmakers who drive the performance.

~~~
derefr
An interesting speculative-fiction writing prompt: performance-based
compensation gets declared illegal. All salespeople instantly change careers,
because, without performance-based compensation, their jobs are awful and they
hate them. Every company in every market suddenly has to get by without the
ability to actively get their products into people's hands.

What happens next?

~~~
dbspin
The world is vastly improved as all search results are now 'organic', and
people find the products they need without being bombarded with advertising
and cheap behavioral economic manipulations to encourage them to purchase
products and services they don't need.

~~~
derefr
I think you're thinking of marketers/advertisers, who are not, in fact,
compensated based on performance.

~~~
notfromhere
That’s not true. Marketers these days increasingly have revenue targets

~~~
derefr
Target-based compensation (i.e. “getting a bonus if the project succeeds”) and
performance-based compensation (i.e. “working on commission”) are different
things. One directly rewards effort; the other (mostly) rewards office-
politicking, by e.g. finding your way onto projects on the cusp of success.

~~~
notfromhere
No. Lots of marketing is directly tied to revenue generated and get
compensated on their direct ability to generate pipeline. It's directly tied
to performance.

------
jimmytucson
When I was interviewing for roles at tech companies while working on Wall St.,
I remember having conversations with recruiters where I would tell them my
salary and my bonus (which was usually 30-40% of my overall comp), and they
would say something like, "We don't give out 30% bonuses here. Is that okay?"
And I would say, "If you can match the overall comp, then yes, that's
terrific."

The point being, bonuses are just a way for finance companies to flex your
salary down when the firm has a bad quarter, or you're unvalued or working on
an unvalued project. From that standpoint, I don't see bonuses going away any
time soon, but if they do then all the better for the employees.

~~~
tboyd47
In this situation, do you think getting "flexed down" by your company is
overall better or worse than companies just eliminating your position
entirely?

Edit: Did someone read some snark in my question? It was an honest question.

~~~
Psyladine
It's the difference between a screw that can be tuned to performance, or a
nail that is hammered in place permanently. bonuses differ from raises in that
their isn't an element of entitlement or a long term commitment from the
organization.

It's not about being squeamish about eliminating a position, companies have no
concerns with that.

~~~
jagged-chisel
> It's not about being squeamish about eliminating a position...

If that's the case, wouldn't it make sense to offer a 'stable' higher salary
to an employee, and then sack them when it's financially beneficial to the
company? I think the company does indeed have a concern with that - it becomes
known that a particular company just thins the ranks every 18mos, and they'll
have fewer folks lining up to take jobs.

On the other hand, even if the salary is lower, an employee can be more
confident in keeping at least a modicum of income in lean times, and can also
'compete with colleagues' when bonuses are available. The perception (of the
employer to the employee) is valuable to some extent.

~~~
rusk
> sack them when it's financially beneficial to the company?

Depends on how onerous a task it is to rehire when things pick up again ... I
presume that’s part of the reason foe generous separation packages when a
company actually _must_ let people go ... at least you won’t have a bad
reputation militating against you!

------
whack
I've worked in the industry and gotten multiple job offers over the years from
them. It still blows my mind that >50% of your compensation is issued as a
once-per-year completely-discretionary "bonus". It mostly works fine, due to
firms wanting to safeguard their reputation. But if for any reason, you piss
off the wrong person or the firm has a bad year, you will lose 50% of your
expected compensation... retroactively for the work you had already done in
the past year... with no legal protections or recourse whatsoever.

Sure, tech companies have significant bonuses and RSUs as well. But the bonus
is more limited in size. And the RSU vesting schedule is more fine-grained,
explicitly defined in your employment contract, and the stock valuations are
determined by the wider market.

Imagine working in finance for a year, expecting to earn $300k for a year's
work, and then finding out at the end of the year that you're only going to
get a fraction of that. It blows my mind that this doesn't scare more people.

~~~
soVeryTired
People always explain the existence of bonus culture through the firm's
ability to manage comp downward in hard times. I'm not so sure though - I've
been through hard times at a hedge fund. One year my bonus froze at the
previous year's value, and another year the more senior people took a 10% hit
to their bonus.

I honestly think bonus culture is about power - specifically the power you're
describing there. Your boss's boss can ask you to come in at 2am because if
you don't, you risk taking a massive hit to your comp.

The other reason - also related to what you're pointing out - is that if you
quit six months into the year, you leave a significant chunk of money on the
table. Silicon Valley has similar golden handcuffs in that regard though.

~~~
thrav
I agree, the power is a factor and that it's not about the company having a
down year. This exists in Tech Software sales too. It's about not paying full
price for a person who doesn't produce.

It's about shifting the budgeted comp of the under-performers to the over-
performers. Inevitably, you will end up with a bunch of over-performers
killing it, and the under-performers who can't make their number will leave.
It's a giant selection process.

Good employees make bank. Bad employees quit and go somewhere with less
downside risk.

~~~
sokoloff
Perfect. That’s what good employees and companies in asymmetric businesses
should want.

------
airstrike
This is the opinion of one guy from UBS. Pretty much summarized in two words:
irrelevant sensationalism. My bonus isn't going anywhere but up in the next 25
years.

Also this is only talking about trading at bulge bracket banks like UBS but
"Wall Street" is much larger and more complex than that.

~~~
busterarm
That's cool. I came from the hedge fund side and left 12 years ago, but many
of my peers stayed on. In the last 4 years virtually 100% of them have left
due to meager bonuses (we're talking about the systems/infrastructure side of
the business, including in HFT) and have all gone on to work at FAANGs
(average comp I'd say between & 400k-600k).

~~~
mlthoughts2018
My counter anecdote is that I left an asset manager about 5 years ago, and the
firm I left has grown twofold, mostly hiring quants, has low turnover,
excellent work life balance, and bonus payouts have gone up. I kick myself for
thinking FAANG was greener pastures because I make less money as a senior
engineer in FAANG than a two years out of school quant, while also having a
more stressful job.

~~~
onlyrealcuzzo
What FAANG are you at that's more stressful than being a quant?!

~~~
asdfasgasdgasdg
FAANG sorted by stressfulness decreasing is N>>>AAF>G, from what I hear. So if
they're working for N, this wouldn't be too surprising.

~~~
Bahamut
Everything I hear from friends at all these companies is that for stress,
Amazon > Apple > Netflix > Facebook > Google. Netflix seems far less stressful
than Apple from everything I've heard from employees that have worked at both.

~~~
_jal
Think it really depends on where you land. I think everyone agrees that Google
is easy-mode; beyond that, it depends on which group you're in.

Two friends at Apple illustrate: one says he does basically nothing but surf
the web, the other last I heard is is nearly sleeping under his desk in a
crunch.

------
smacktoward
If the blowback from the 2008 financial crisis wasn’t enough to kill it, I am
skeptical that anything can.

------
smabie
The sell-side has become pretty boring and just like other industries.
Everything interested has moved to the buy-side, in which bonuses as primary
compensation is still alive and well.

~~~
rb808
I don't really understand how Buy Side can be all that good still. AQR is in
trouble, Bridgewater had their first loss in decades, Millennium was good, 2
Sigma is OK if unspectacular, Citadel is good, Point72 is still struggling,
Rentec is presumably still great but no one ever knows. The HFT funds like
Tower/Virtu are all finding their well dry, over all more hedge funds shut
down than started. Which hedge funds are actually doing well in this
environment? (OK I listed 3) but I don't see the future as very promising.

~~~
Galanwe
You cannot mix companies like that. Each of the companies you listed have a
lot of funds with very different strategies and PnL.

Long short are having a hard time since 2018 for instance, doesn’t mean
directional funds have too.

Also, we are in a high deleveraging in L/S environment, so the last 2 years
should not be taken as benchmark IMHO.

------
sosilkj
Sounds like right now banks want people who can code but also have "quant
skills". What's the best way to go about learning/acquiring quant skills?

~~~
bradleyjg
A friend of mine started in the industry right of school with a CS degree but
then got a masters in financial engineering at night a few years in.

------
wonderwonder
Automation is going to hit the jobs market in many unexpected ways.
Interestingly its going to take as big a bite out of white collar jobs as blue
collar ones. The majority of trading, accounting, and other number related
jobs could disappear along with the truckers, manufacturers and fast food
jobs.

We really are entering a new era when it comes to employment and the
definition of the 'means of production'. Software and robotics is reaching
into uncharted territory.

Should be very interesting in the next decade or two to see if society reacts
with the adage to just pull yourself up by your bootstraps or starts to
seriously look at a UBI.

~~~
harryh
Technology has been destroying jobs for nearly all of human history and yet
here we are with full employment. Those that assert that "this time it's
different!" have a steep hill to climb when it comes to evidence.

~~~
wonderwonder
Full employment simply means people have a job, not that it meets their
minimum income requirements. This article is a good example, its stating that
they will be doing the same work but just getting less pay for it. These
people are at the top of the food chain, but the same thing happens to people
at the other end.

~~~
tptacek
This isn't responsive to the argument 'harryh made; it basically just repeats
the premise he responded to.

------
rjkennedy98
Julius Krein has written about this and I think he analysis is very prescient:
[https://americanaffairsjournal.org/2019/11/the-real-class-
wa...](https://americanaffairsjournal.org/2019/11/the-real-class-war/) . He
associates it with a much greater malaise across the economy, and the growing
gap between the top 10% and the 0.1% percent.

------
inthewoods
Leaving aside hedge funds, the business that I see changing most has to be
mutual funds.

I've seen a number of mutual fund managers who generally underperform their
index for years operating a relatively high-fee fund (compared with ETFs)
getting huge bonuses. It's just ridiculous.

Vanguard and ETFs in general are coming for those people, albeit slowly.

~~~
nickles
> mutual fund managers who generally underperform their index for years
> operating a relatively high-fee fund (compared with ETFs)

There is a bit more nuance here. The fund manager oftentimes has an obligation
to follow a given mandate, which may not seek to outperform a given index. For
example, investors may want exposure to specific factors (value, growth,
momentum, etc.) or asset class (municipal bonds, preferred stocks, etc.).
Additionally, investors may seek funds with better risk adjusted returns as
opposed to funds with greater absolute returns. In these cases, managers are
compensated for delivering on their mandates. The ETF space has similar high
fee products.

~~~
inthewoods
Even given that nuance you'll find ETFs of all types, generally with fees far
less than what you pay for the equivalent mutual fund.

Bottom line, for me, is that the active management employed by a large portion
of the mutual fund complex provides little additional returns, yet they get
paid handsomely for delivering a sub-standard product.

------
anonu
I think the headline is a bit sensationalist. But it's mostly true. The GFC
was the catalyst. The resulting regulation handcuffed most trading desks (like
the failed and nonsensical volcker rule).

But the bonus culture is still alive and well at the small shops, especially
the quant shops that embrace automation and scale.

~~~
pnako
Really? It doesn't make much sense to have bonuses for automation since it's
largely a group effort. And that's probably the main reason why those
performance bonuses are disappearing.

~~~
anonu
Soccer is a group effort, but you still have star players that get paid
outsized compensation.

Trading is very much about managing and taking on risk. Even if there are
computers managing trading - managing risk is still human driven.

~~~
pnako
Let me clarify my point a bit: the easier it is to measure the actual
performance of an employee, the more their compensation will be linked to
their performance. Take for example a company developing software. The
variance in the compensation of the software developers will be lower than the
variance in the compensation of the salespeople. That's because it's much
easier to measure the performance of a salesperson.

In most trading shops it's becoming more difficult to estimate the
contribution of a single individual because technology is more important than
before, and plays a role in how competitive you are. That doesn't make them
any less talented, educated, hard-working, etc. It just makes it more
difficult to know their exact contribution. Which means that their
compensation will not necessarily fall down, but will become less performance-
based.

~~~
anonu
I think were talking about 2 different things. Yes, technology is important -
but these aren't simple systems - nor are they open source.

In the trading world, as an employer you are disincentived to give the keys to
your model - aka your secret sauce - to all your employees. You will reward
only a select few who you trust to stay on board, manage the model,
continuously improve on it to stay pace with the changing markets. If you give
the keys to too many people, eventually they will jump to other shops, copy
your ideas and your edge will deteriorate.

------
TrackerFF
I'm just sitting here and wondering what the landscape will look like after
the next financial crisis.

~~~
papito
Bailout by taxpayers - then back to our originally-scheduled programming,
injected with warnings about the threat of looming Socialism, without a hint
of irony.

------
xvilka
I hope more Wall Street companies will use better programming languages and
improve the corresponding infrastructure like Jane Street and Bloomberg did
with OCaml, like Standard Chartered did with Haskell. I hope to see more
adoption of those rather than Python, also hope for getting [1] Rust in this
circle.

[1] [https://internals.rust-lang.org/t/proposal-business-
applicat...](https://internals.rust-lang.org/t/proposal-business-applications-
working-group/10400)

------
omarhaneef
Matt Levine on this very topic:

[https://www.bloomberg.com/opinion/articles/2020-01-13/the-
ro...](https://www.bloomberg.com/opinion/articles/2020-01-13/the-robots-will-
take-your-bonus)

Lots of agreement and disagreement.

------
neonate
[http://archive.md/MOQhV](http://archive.md/MOQhV)

------
C1sc0cat
I am sure that wall street /city employers will support a move to more fixed
pay _NOT_

I am sure employees would enjoy having a more fixed Quata and not have to
worry about what they get come bonus time

------
austenallred
No it’s not. It’s simply not.

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garminexpress8
nice post

------
classified
Ha! Picture me rolling on the floor with laughter, barely able to type this
comment. The article's idea is somewhere between a fairy tale and an urban
legend.

