How to negotiate your bonus, by Bank of America's ex-head of credit trading
Matthias Schwarz knows a thing or two about banking bonuses. He spent 17 years in banking, of which 15 years at Bank of America, where he was head of EMEA credit trading.
When he ran the EMEA credit trading business, Schwarz says he gained a perspective on bonus allocations that most people never get to see. "There are very few people in these organisations who have an overview of the bonus pool and who know what the decision-making process is," he tells us. "It took me 10 years in management before I finally saw the real picture."
Schwarz left BofA in 2021. He's now running his family office, trading rates and equities from a macro perspective. But he also has a side-gig. On a select basis, he instructs people in the industry how to negotiate a bonus. Specifically, he instructs people in the industry how to negotiate a much bigger bonus than before.
"I don't see myself as someone who coaches people who struggle with performance," says Schwarz. "There are plenty of work performance coaches out there. I consult or advise the strong performers that usually wouldn’t have anyone to go to." Most coaches have limited knowledge of bonus negotiations, he adds.
Schwarz's ideal client is a high performing banker or trader who is underpaid and or under promoted. They're often people in the mid-ranks whose performance exceeds the expectations for their job title but who haven't been paid more because it can be a struggle to negotiate the pay appropriate to their PnL generation when others at their level are earning or a lot less, and when they earned a lot less in previous years.
These are the sorts of people who are most at risk of jumping to other banks on much higher pay packages, says Schwarz. But they're also the people most banks don't want to lose.
“When you’re a senior manager in a bank, 60-70% of your staff will berate you with the fact that they think they’re underpaid," says Schwarz. "In most cases, this isn’t the case. But in every team there are high performers who genuinely are at risk of being underpaid compared to the market, and people in this group could get a lot more if they move to another bank. These people often suffer in silence and only express their grievances once they’ve accepted an alternative job.”
When a member of this breed of underpaid high performers resigns, Schwarz says banks will typically respond by offering them an enormous counteroffer that will substantially increase their previous pay. However, accepting a counteroffer is notoriously fraught with peril: counteroffers cause resentment on both sides, both from the bank that was forced to pay one and the individual who was previously underpaid and only negotiated a raise by holding a metaphorical gun to the employer's head.
Schwarz says it's much better to preempt this situation and to engineer a bigger bonus before you resign and before you get to the counteroffer stage.
How to get a bigger bonus without resigning
"You need put in the work to increase your pay without resigning," says Schwarz. "It’s like a pregnancy – once you’re pregnant with the new offer, it’s too late.”
Schwartz says there are three things you need to understand.
Firstly, banks always structure their bonus pools short. "Banks are aware of their key revenue earners, but it’s a calculated game: if you can avoid paying them more, you will. If you have exceptional people, and you pay them well every year, you will deplete the bonus pool for average performers, who you also need to retain." In many cases, bonuses are 30% below the going rate.
Secondly, when initial bonus allocations are made, there's always a buffer of extra money in case people need to be hired on guarantees or bid-back through a counter-offer.
Thirdly, team managers look bad if they end up having to bid back a star player who's threatening to leave. If things get to that stage, it suggests they're not in touch with their teams.
The trick is to make it clear that you are underpaid, to access the buffer, and to make your manager look good.
It starts now
If you want a bigger bonus, you need to start negotiating soon, says Schwarz.
“It’s a game of chess, and it starts after the summer,” he says. “Bonus allocations for key people are discussed on a person by person basis. As a manager, you have you to fight tooth and nail – your manager has to make a credible case to his boss on why it’s important to pay a certain person more than they ordinarily would."
He says your manager needs several things to help him/her.
Most critically, they need an awareness of your expectations and the fact that you're not happy with a low level of pay. You need to have an "honest conversation" and to clarify that much as you like the role and the bank, you are aware that you could get paid a lot more elsewhere.
This requires "hard facts" to substantiate your case.
Schwarz says those hard facts need to include: "your performance, how valuable you are, how replaceable you are, and how much you are paid compared to peers.”
Your facts need to be granular and specific. “People came to be a lot with pay complaints but they were often unsubstantiated. They’d point to someone else’s pay, but there would be no real comparison – that person would often have done something extraordinary.”
The first cut of the bonus pool typically happens in September or October, says Schwarz. At this stage, senior managers start preparing spreadsheets on previous pay and performance. In late October and November, there are often further allocations and potential cuts, particularly in a year like this when pools are likely to be down dramatically. Throughout the process, you need to ensure you're top of mind. You also need to understand how much to push your manager -Schwarz works with clients to understand the manager "type' and how to influence them.
"If you leave it until January or December, it’s too late,” he adds.
Schwarz works charges his clients on an hourly basis. People come once, work out whether he can add value, and then come back. He's worked with around 20 people so far, some of them very senior.
"One exceptional client in Asia was already a long way down the interview process with another bank, and I advised her to avoid a situation where there would be a bid back," he says. "She'd already spoken to someone internally and had been ignored. At that point, we decided it was best to go above her manager’s head and to explain that she was thinking of leaving but wanted to stay if possibly could. It risked annoying the manager, but there was no choice – the senior manager would appreciate her coming forward and in that situation the client was such a strong performer that she possibly would replace the line manager within a year."
The resulting pay rise from her current employer? Over 90%.
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