Jeffries Bonus Memo 2011
Jefferies, the investment bank that has been faced with concerns about its financial health, is mixing things up. In an internal Jefferies memo that was obtained by Charles Gasparino at FOX, year-end bonuses in 2011 will have to be repaid by bankers who voluntarily leave in 2012. According to Jefferies, this will better align the incentives of employees.
Good Idea or Bad?
On the surface this seems like a good idea. Turnover is highest right after bankers get their bonuses; an employee who plans to leave a firm almost always waits until the large year-end bonus to make the jump. This new policy will presumably deter that type of calculation.
But there is a potential drawback to this new approach. Instead of (or in addition to) outright layoffs, low bonuses are often used by investment banks as a signal to the underperforming banker that it might be time to leave. For example, a first year JPM analyst who received a paltry 15k bonus (compared to the top bonus range of $75-85 is essentially receiving a signal that he should leave. In a tough economic climate and with the added pain of a clawback, Jefferies might be inadvertently retaining underperformers, unless this new policy is backed up by more aggressive termination of poor employees.
The other obvious wrinkle in this plan is that unless other banks follow suit, or unless Jefferies provides out-sized bonuses going forward, Jefferies has just become a less appealing place to work and they may struggle to compete for talent.
Original story reported on FBN
