LONDON The bars around London's finance district may soon start filling up with bankers fresh from pay discussions, but not many will be there to splash their bonus cash.
This year zero bonuses, known as "doughnuts," will affect even senior staff and could include a bigger proportion of employees than in the 2008 financial crisis, bankers and headhunters predicted as U.S. firms start telling bankers this week what they will get.
Slumping quarterly profits, a darkening long-term outlook for the industry and unrelenting pressure from politicians and an angry public, are pushing bank bosses to break away from a culture in which most staff expect a bonus every year and base their personal budget around it.
"This will probably be the worst year for zero bonuses we've seen, although those that will have done well will still get something," said Jason Kennedy, who runs recruiting firm Kennedy Group.
"Global heads and senior managing directors are among those that will get nothing -- they're the expensive staff, and they'll be living off their higher salaries."
Underperforming bankers already came under pressure in the 2010 bonus round as "doughnuts" multiplied, but this time division heads are raising the bar and reserving payouts for an even smaller group of star bankers.
Bonuses would be down at least 30 percent for those that do get one, Kennedy said, while other recruiters predict cuts of up to 70 percent in some areas, such as bond trading.
Bankers at Goldman Sachs (GS.N), Morgan Stanley (MS.N), JP Morgan (JPM.N) and Citi (C.N) are among those expecting to hear about their bonuses this week, coinciding with these firms' fourth quarter results.
Overall pay at JP Morgan's investment bank came in at $8.8 billion (5.7 billion pounds), down 9 percent on 2010 levels, while total revenues for the year were flat, its filings showed last week.
WHITER THAN WHITE
Bonuses are only one part of those pay costs, however. Since 2009, salaries have often doubled for top investment bankers, to around 350,000 pounds ($536,500) on average, according to recruiters' estimates.
This was after firms tried to find ways around a bonus tax in Britain and tougher rules on rewards across Europe. It put additional pressure on bonus pots, through which firms still have some leverage to cut pay costs.
Senior bankers in charge of bonus decisions for their teams have been talking tough about pay for months, preparing staff for lower payouts by pointing to the thousands of jobs being cut across the industry and to the rise in salaries.
"We've got to be realistic. We're not talking hardship here," said a division head at one major U.S. firm.
"There is a psychological impact when you don't get a bonus -- it used to mean you're not doing well and could be let go. It doesn't make the (bonus) conversation very easy, but this year there will be strength in numbers."
Many expect these senior bankers to be among those to forgo big payouts, partly as a move to appease disgruntled staff.
"They have to be seen to be whiter than white, and not to be necessarily paying themselves but the performers in their teams," said Jonathan Evans, chairman of headhunters Sammons Associates.
The rise of "doughnuts" will not mean the end to bonuses or to public anger over payouts.
At government-controlled banks like Britain's Royal Bank of Scotland (RBS.L), where bonuses are likely to total between 400 million and 500 million pounds, according to sources and company reports, these rewards are still under fire.
"It's extremely difficult to justify any bonus at all at a state-owned bailed-out bank," British Conservative Member of Parliament Steve Baker told Reuters.
Baker joined about 40 anti-capitalist protesters from the "Occupy London" movement in a gathering outside the offices of Britain's financial watchdog last week, condemning excessive executive pay.
Ahead of this year's bonus season, the British government has also moved to clamp down on rewards by suggesting shareholders should get a veto on pay.
As scrutiny of investment banks' pay practices mounts, many are already taking their own steps to amend the structure of rewards, beyond just cutting them.
Morgan Stanley will reportedly tell employees this week that cash payouts will be capped at $125,000, with any portion received above this deferred until at least the end of the year. Top management might defer their entire bonuses for 2012.
(Reporting by Sarah White. Editing by Jane Merriman)
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