What Will Bank Bonuses Look Like in 2023?

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What Will Bank Bonuses Look Like in 2023?

As the financial industry continues to evolve, so too do the incentives that banks offer to attract and retain top talent. While the past decade has seen a wave of regulatory reform and public scrutiny that has tempered some of the excesses of the bonus culture, competition for skilled workers remains fierce, especially in key areas such as investment banking, private wealth management, andfintech. What trends are emerging inbank bonuses, and what factors are likely to shape their future trajectory?

New Metrics for Performance and Diversity

One trend that is gaining momentum is the use of non-financial metrics to evaluate employee performance and align it with broader goals such as sustainability, innovation, and diversity. For example, some banks are incorporating environmental, social, and governance (ESG) criteria into their bonus schemes, rewarding employees who contribute to the bank's green initiatives, social impact programs, or ethical standards. Similarly, some banks are setting targets for gender, racial, or ethnic diversity and tying them to specific bonuses, aiming to create a more inclusive and representative workforce.

The Rise of Deferred and Restricted Bonuses

Another trend that has been growing since the financial crisis is the shift from cash bonuses to deferred and restricted stock or options. This approach aims to align the interests of employees with those of shareholders, as it ties the value of the bonus to the long-term performance of the bank's stock. Moreover, it provides a stronger incentive for employees to stay with the bank and avoid short-term risk-taking or misconduct that could harm the bank's reputation or stability. However, this approach also raises some challenges, such as how to value the stock and how to balance the need for retention with the need for flexibility in adjusting the bonus pool.

The Role of Technology and Innovation

A third trend that is likely to shape the future of bank bonuses is the role of technology and innovation. As banks increasingly rely on digital tools and platforms to deliver their services and interact with customers, they also need to attract and retain employees who have the skills and creativity to develop and implement these technologies. Thus, some banks are exploring ways to reward employees who contribute to the bank'sdigital transformation, such as by offering bonuses for successful product launches, patents, or partnerships. At the same time, this trend may also challenge traditional hierarchies and job descriptions, as it requires a more agile and collaborative approach to work.

Investment Strategies and Opportunities

As investors, what implications do these trends in bank bonuses have for our portfolios and strategies? One key consideration is the role of ESG criteria in evaluating the performance and sustainability of banks. By selecting banks that have strong ESG scores and bonus policies, investors can align their values with their investments and potentially enhance their returns over the long term. Another consideration is the importance ofdiversificationacross sectors and geographies, as different regions and industries may have different bonus practices and regulations. Finally, investors may also seek to benefit from the growth of fintech and digital banking byinvestingin companies that have a strong talent pool and innovative culture.

Conclusion

In conclusion, bank bonuses are likely to face continued scrutiny and innovation in the years ahead, as banks seek to balance the need for attracting and retaining top talent with the need for accountability and sustainability. By understanding the trends and factors that shape bank bonuses, investors can make informed decisions about their investments and contribute to a more responsible and inclusive financial system.