Nomura Looks At Last 12 Months And Decides Western Bonus Culture Is A Great Idea

While the financial services industry in this country is, whether it likes it or not, being made to get more responsible and less gunslinging, over at Nomura in Japan, they’re carrying on like the last year never happened. Over half of their Japanese investment bank staff have signed up to contracts that reduce basic pay in exchange for higher performance-related bonuses, according to the chief executive Kenichi Watanabe in an interview with the FT. Just what the world needs – investment bankers being encouraged to act recklessly.

Nomura was the bank that bought out Lehman Brothers’ European and Asian investment banking arms back in September when Lehman collapsed (they drank sake to ward off the evil spirits in Lehman’s old building in London after they moved in). Since then they’ve made record losses after taking writedowns on dodgy Lehman assets they inherited, and are set to lose another £156m this year too. But with all the integration of Lehman’s businesses, of East and West meeting, come changes in office culture. Nomura are Lehmanizing their compensation structure in order to keep hold of old Lehman employees, rather than forcing a Japanese structure into their new Western assets.

They don’t really have a choice, because for a talented investment banker, money is king, both on a professional and personal level. Nomura are being held over a barrel by their bonus-demanding Western workforce, which they’ve already spent nearly £400m on persuading to stay; in capitulating to their new acquisition, they’re having to install an unstable compensation structure in their home country. This sort of thing shows more than ever the need for unilateral change in the way performance-related pay is doled out. There needs to be a system where investment bankers aren’t being encouraged to make risks that might destabilise the bank and therefore the whole system, where their actions tie them to performance-related pay over a longer time period rather than a yearly bonus.

With their bonus culture alive and growing, they shouldn’t find it hard to snap people up for their new hiring spree, and that of course is the other side of the coin – in offering traditional short-term bonuses, you’ll be able to attract the best, because the best will want to get paid the most, and so then hopefully your business will flourish, albeit on a fundamentally unstable base. I know this is oxymoronic to the max, but can’t investment bankers just stop being so damn driven by money? The world would be on a much more even keel if you guys just went for either the XK or the DB7, rather than demanding both.

Also in the FT this morning is the news that the UK banking sector is set to get “boring”, in the words of independent market analysts Datamonitor. Also “staid” and “solid”. That’s more like it!

Posted by Ben Beaumont-Thomas in Hot Money | June 1, 2009 10:42AM |