Jefferies Shake-up First of Many? US & UK Bonuses in Jeopardy This Year

by Beth Connolly on January 6, 2012

In the past few days, we saw several stories about the Jefferies Group, in which we learned that employees threatened to jump ship due to significantly reduced year-end compensation.  The shake-up involved executives and other employees within the prime-brokerage unit.

The Jefferies Group, whose shares lost 48% last year largely due to investor concerns over European debt and short-term funding markets, announced yesterday that “family affairs are now in order,” and that the dispute had been resolved  in a series of discussions on Tuesday.  Jefferies notified employees in a memo last month that any employee who leaves the firm within the year will be obligated to return his or her cash bonus.

Today, more stories broke that bonuses and compensation, not surprisingly, are in jeopardy.  BNP Paribas announced that it will cut bonuses this year in order to retain capital, without specifying the extent of the cuts.  Chairman Baudouin Prot will take home a salary of 850,000 euro, 100,000 less than he did in his role as CEO last year.

In the U.K., Hector Sants, Chief Executive Officer of Financial Services Authority, is heavily encouraging banks to withhold bonuses unless they can meet a specific level of capital, the Wall Street Journal reports.  ”We are vigorously engaging with major U.K. banks to ensure they comply with [earlier regulatory requirements] to retain capital by reducing distributions such as bonuses,” said an FSA spokesman.

British Prime Minister David Cameron said in his New Year’s address that he plans to continue reducing bank bonuses and give more power to shareholders to limit bankers’ compensation.  ”We’ve seen a level of reward at the top which hasn’t been commensurate with success,” he said.

Similarly, the European Banking Association, the EU’s top bank regulator, insisted that European banks must raise 114.7 billion euros by the end of June 2012, and encouraged them to do so by limiting bonus payouts.

Outside of the European and North American continents, though, no such sense of restraint was found.  BusinessWeek reported today that Brazilian investment bankers, typically paid salaries that are about 15-70% higher than American banking salaries, saw 25% pay increases this year due to scarcity of qualified workers.  In Korea, major banks like Kookmin, Woori, Samsung, and Shinhan plan to distribute bonuses ranging from 100 to 300 percent of employees’ salaries, though Korean regulators recommended against it.

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