Associate Stub Bonus COVID
What are stub bonuses normally for Associate 0s at a BB? And do you think banks are going to significantly cut that due to COVID?
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There are a few things you need to realistically consider.
First... how has your Bank's health been for the last 6 months and 12 months. Just using JP Morgan as an example. In 1H of 2020, the firm had a Net Income of $7.5Bln. For 1H of 2019, their Net Income was $18.8Bln. That's a ~60% decline YoY. To put that in perspective. In 1H20, JPM had $18.7Bln (~30%) held Provisions for Credit Losses against $62.8Bln in Net Revenue. At this point last year, JPM has $2.7Bln (~4.5%) in Provisions for Credit Losses against $59.2Bln in Net Revenue. Assuming that JPM pays bonuses out of a pool generated by Net Income, the aggregate 2020 Bonus Pool will be down.
Second, how deep will the cuts go? Just using 2009 as a proxy, the average bonus on Wall Street dropped about 50% from the 2007 high. While I'm not going to say that the impact will be this severe, if the rumors are that A3 bonuses are expected to be cut in half, I would expect the A0 bonsues to be cut in half as well.
Third, how are banks calculating the stubs. Using the example were posted anonymously, if the stub is $40K, and they are prorating it out to a 3 Month stub because of longer training and starting later, the prorated stub works out to $26K. Add in the deep cuts and the stub will end up being closer to $13K, if any bonus is given.
Fourth, just from a heirarchical standpoint, bonsues decline from the top of the pryamid down. For easy math, if we assume that an A3 makes 200K, then an A2 would make 150K, an A1 would make 100K, and a stubbed A0 would make 40K. If there are cuts (assuming no changes to stub bonus math), everyone will get cut the same percentage. If there are talks of bonuses getting cut, can you handle your bonus getting slashed significantly?
Fifth, can you handle the peace of mind of not potentially getting a stub bonus? If you don't get a stub bonus, consider your bonus to be that you are still working. I know it's going to suck ass not getting one, but that may be a reality considering the times we live in. I remember in 08/09 where friends of mine didn't get bonuses because everything grounded to a halt. This last one is really important. If you can't, I would spend a few hours trying to make sure your finances work so you can handle not getting that bonus.
If I understand your point, and please tell me if I'm misinterpreting this, but the only thing that matters in IB bonuses is fee generation, and not performance across the bank. If you want to use fee generation as your benchmark, then you disproportionately exclude divisions that were adversely affected by Covid from contributing to the bonus pool and limit their eligibility from receiving bonuses. If that's the case, then your point is incorrect.
I assume that JPM structures their bonus pool out of net income. And before you suggest 2008 as a counterpoint, banks used TARP funds to pay out bonuses which effectively bypassed traditional means of carving out the bonus pool. While IB Fee generation and S&T Commissions will disproportionately shift the bonus pool towards IB and S&T bonuses, banks aren't going to give separate pools based on each group's fee generation. I'm not an expert on the tax code, but compensation rules have their own safe harbor provisions. Safe Harbor provisions include bonuses in the defition of compensation. As a result, even with discretionary bonuses, there have to be policies in place defining how the bonus pool is created and divided among divisions in order to be compliant with IRS rulse.
However, just looking at multiple JPM proxy filings and extrapoliting from the bonus structure for the their executive commitee, JPM uses EBT for the basis of its OC Bonus pool. By extrapolation, I would assume that the entire bonus pool is derived from this in order to be compliant with any and all safe harbor laws in place. So I'd argue that yes, Net Income is a good proxy for a relevant metric for IB Bonuses.