Ellis Ratner, a banking specialist at executive recruiter Kenzer Corp., recalls a recent conversation with an acquaintance, an executive at a major New York bank who's a number of rungs below the top. The subject? What it might take, money-wise, to induce him to leave for another job. "The figure of $550,000 came up, and he just kind of chuckled," Ratner says.
Recruiters across the country know the phenomenon well. Top bankers, riding the long bull market and beefed-up pay packages, many sprinkled liberally with stock options, aren't exactly hankering to leave for unknown parts. It's a job-seller's market, and it is costing hiring banks a pile of dough-and frequently sign-on bonuses-to induce people to move.
"There's a genuine willingness, or need, or requirement" to pay top dollar for the most senior-level positions, says Jim Norton, who heads Korn/Ferry International's financial services practice in North America. That's especially true with "strategic lines of business or products," where banks "will make investments in people as quickly as bricks and mortar."
Norton says he's been involved in 11 "team" recruiting assignments in the past few years in such areas as investment management, leveraged finance, leasing and indirect lending. In some cases, the hiring institutions put together compensation packages that mirrored equity ownership; they couldn't actually give equity because regulation barred them from setting up a separate company.
Indeed, recruiters are finding that the "new economy," driven by "dot.com" firms that have flourished like mushrooms after a spring rain, has reinvigorated American entrepreneurship-and created an irresistible lure for some people to get into a small group keen on leveraging an idea and taking a company public down the road. That can be a path to enormous wealth, and that lure can create an enormous challenge for conventional companielike banks intent on keeping entrepreneurial talent in the fold.
What's critical these days, Norton says, is the ability for established firms "to give individuals more entrepreneurship." Mellon Financial Corp., he notes, has been doing this for eight or nine years, doing "lift-outs" of key players at small asset management firms, and giving the principals equity ownership or "phantom stock." Phantom stock models simulate actual equity and create ownership allotments, often with vesting schedules similar to stock options.
In more conventional areas of banking, recruiters say, the trends speak less to innovation than scale: Compensation packages may not look that much different from a few years ago, but the size is far larger. "It's not so much that innovativeness and out-of-the-ordinary packages have been appearing, it's just that the money piles up," says Kenzer's Ratner. "[They're] doing the same things they have always done, but they're just doing it in multiples of three or four. There are year-end bonuses and sign-on bonuses, and occasionally stock."
Businesses are larger, and specialization has created a higher, competency-based pay scale; the emergence of Section 20 investment banking subsidiaries and fee-based activities have helped drive those changes, Ratner says. "Banks, for the right person, are now willing to buy out bonuses at the end of year. That can be as high as 50, 80, 100 percent [of salary]. For a bank to write checks of that size [is notable, because] that doesn't represent any profit that has come its way."
"If you're talking about moving from one bank to another, we're seeing probably a greater trend for our clients to wait until someone has collected their bonus," counters Steve Popper, executive director of the e-commerce financial services practice in New York for recruiting firm Christian & Timbers. "There are a couple of large deals pending where the client has said they won't pay a buyout-almost to the point of putting the deal at risk. There are exceptions, more so on the profit-center side, for people like high-yield traders or equity analysts. If they need to buy you out, they will." Recruiters say that cash is usually offered if the person being recruited away is leaving a one-year cash bonus on the table.
Bonuses on the other end-at hiring-have become common. "Sign-on bonuses are a reflection of bonuses being left on the table at a previous employer; the notion is to make up the difference, and that's almost always done in cash," says Robert Rollo, co-managing partner of Rollo Associates in Los Angeles.
Rollo notes that as a result of the long bull market, senior-level bankers often have unvested shares or stock options that are "in the money." He adds: "One of the differences in banking from some other industries is that bankers at a senior level are in their late 40s and 50s. People in other sectors are five to seven years younger. When the bankers leave, the [difference in the] amount of money left on the table is significant."
"The closer someone gets to 50, the more concerned they are about a nest egg and retirement," he adds. "They're a little more mature and experienced. When someone is closer to 40, they're more interested in the brass ring."
Overall, recruiters agree that it's generally harder than it was a few years ago to get bankers to consider shifting jobs. "It's a combination of the bull market, full employment and the fact that most senior people are delighted with where they are," Rollo says. "There's been a lot of [financial] buildup, and most companies are growing." Resistance to relocation is simply a subset of the overall aversion to change, he says.
"Find a way to give employees what they want. It's not about job security anymore, because the job market is booming," advises recruiter Cathleen Faerber at the Wellesley Group in Lake Zurich, Ill. "And it's not about benefits, because most benefit packages are pretty standard these days. What people want is a balanced life."
In this age of specialization, it's not surprising that it's the top people in specialized areas, especially fee income-generating ones, who are most sought-after. There's been a widely noted scarcity in high-tech people, many of them already locked up for key Internet-related projects. Moreover, the Year 2000 conversion sent the prices for good tech workers "through the roof, and it's hard to get them to move into banking from other venues," says Robert Kenzer, president of Kenzer Corp.
If there is a slow area in banking, it's plain-vanilla lending. "Because of consolidation, the compensation of people in the credit side hasn't grown dramatically-there's a lack of demand," says Jack Nehiley, general manager at Management Recruiters International/Boston.Nehiley says a hot area in his marketplace is cash management and treasury, including areas like mutual funds and 401(k). Compensation has grown dramatically, particularly for operations people, as well as sales, in the talent wars between banks, insurance firms and mutual fund companies.
"We're seeing that for the same positions, people are getting a 25% increase in compensation from two years ago, as well as other things like signing bonuses," Nehiley notes. "But it's almost a case of musical chairs with some of these people. They go from one company to another. They're in demand, and they know it."
With that, recruiters find counter-offers-once relatively rare-almost commonplace. "That was never much of an issue in the past," Nehiley says. "Now, companies will do whatever they can to match an outside offer-it's almost expected that they will ask you what it will take [to keep you]. The cost of having to replace that person is incredible."
Kenzer's Ratner notes that "there are areas that are making people very rich that didn't exist four to five years ago. We get requests from clients at money center banks and investment banks for derivatives traders, salespersons and structurers. They tend to be Ph.Ds in quantitative subjects. After a couple of weeks at a bank, these guys are doing swaps. They're able to lock in profits."
Christian & Timbers' Popper notes that "some of bigger institutions are creating separate entities with a less hierarchical environment. They need more than the perception of being nimble. Instead of putting money aside, they're making big investments in companies that are spin-offs of themselves"; as an example, he mentions WingspanBank.com, the separate Internet bank launched by Bank One Corp. last year.
Establishing new pay formulas for new divisions can be hazardous, however. "Compensation is a weapon-both offensive and defensive-in many of the businesses that banks have entered, and a failure to pay attention to the complexities of pay structures is a powerful negative force against a successful integration," noted Wachtell, Lipton, Rosen & Katz attorney Adam D. Chinn in the Banking Policy Report earlier this year.
Peering into the future, Ratner says the threat of mergers "will cause restlessness and a willingness to move." He sees 2000 as a busy recruiting time, especially for e-commerce and Internet trading positions. "Anytime you have shifts in ways financial services companies do business, you're going to have compensation issues for individuals, and room for a search firm to pitch in. I don't see how that will diminish."
But for all the Internet siren songs being heard, senior bankers are probably less likely to heed them than people in some other businesses. "People today realize the value of having a background within their industry-they're staying in and using that leverage to get increases," says MRI's Nehiley.
Says Popper: "Some people still want to work for a brand-name bank or investment bank. There are still a lot of people willing to bet on more of a sure thing."
Techies Can Be Tough to Find
Tales of scarcity in the technology hiring area have been circulating for years, with bank recruiters talking about lengthy searches and candidates turning down princely offers. While the Y2K conversion clearly created tremendous demand, that's not going to disappear now that Y2K is behind us.
In a recent salary guide issued for 2000, staffing service firm Robert Half International pinpoints a number of tech job areas it expects to be in particular demand:
( Networking. Skilled workers are needed for both maintenance and expansion. "As companies continue to implement and upgrade their client/server systems to meet internal and external communication needs, networking remains the dominant IT job specialty," Half notes.
( Technical support. This is being brought on by the growth in help desks, corporate intranets and Internet ventures such as e-commerce. Experienced local area network (LAN) professionals are in genuine demand, Half says.
( Internet/intranet development. Financial services companies need to continue upgrading and adding functionality to their Web sites, and skilled developers are at a premium.
( Relational databases. Brought to the forefront by huge investments in data warehouses and data mining, relational database management requires people versed in database technologies such as structured query language (SQL).
( Applications development. As custom applications become more widespread on network systems and on the Web, companies need programmers versed in object-oriented language skills or e-commerce applications.
Half also reports that "many companies are now offering progressive incentive programs to IT professionals designed to recognize employees' lifestyle needs and to boost morale and retention." Among the steps that are becoming common, it says, are training or certification programs, job-sharing, flexible work schedules, telecommuting, casual office environments and money-related incentives that include performance-based pay or signing bonuses, stock options and equity incentives.