I've worked in the industry and gotten multiple job offers over the years from them. It still blows my mind that >50% of your compensation is issued as a once-per-year completely-discretionary "bonus". It mostly works fine, due to firms wanting to safeguard their reputation. But if for any reason, you piss off the wrong person or the firm has a bad year, you will lose 50% of your expected compensation... retroactively for the work you had already done in the past year... with no legal protections or recourse whatsoever.
Sure, tech companies have significant bonuses and RSUs as well. But the bonus is more limited in size. And the RSU vesting schedule is more fine-grained, explicitly defined in your employment contract, and the stock valuations are determined by the wider market.
Imagine working in finance for a year, expecting to earn $300k for a year's work, and then finding out at the end of the year that you're only going to get a fraction of that. It blows my mind that this doesn't scare more people.
But then again, what's the retention rate in analyst classes? Probably half of the classes quit after their analyst stint, either for greener pastures, business school, or complete career changes. Some stay for their associate roles, or come back for associate or VP after business school - if they even bother with investment banks.
Adjusting bonuses like that seems like a cruel way of enforcing "up or out". If for whatever reason you don't like some subordinate, or think they're cut out for future promotions, just hand out mediocre bonuses until they jump ship.
I think that in banking (and many other businesses), it's entire possible to be a good / well-performing junior banker, but not necessarily have the skills of succeeding in more senior roles, where your job is very different. (e.g mostly dealing with clients)
Well it goes with the culture of investment banking: high-risk, high-reward. Once you are in, of course, they give you the ol’ wink and nod about how much of that risk they are actually taking on.
> It blows my mind that this doesn't scare more people.
I don’t work for finance anymore, but when I did, the reality was I could walk down the street to another firm (even in 2000/2001) and I was seen as creating value for my current firm and forecast to continue doing so.
If you want to nerf my bonus, you can do it legally, but I’ll take a cardboard box and pack up. If the company overall temporarily stumbled and bonuses are poor, some people leave; others stay and get “made whole” in the future.
People always explain the existence of bonus culture through the firm's ability to manage comp downward in hard times. I'm not so sure though - I've been through hard times at a hedge fund. One year my bonus froze at the previous year's value, and another year the more senior people took a 10% hit to their bonus.
I honestly think bonus culture is about power - specifically the power you're describing there. Your boss's boss can ask you to come in at 2am because if you don't, you risk taking a massive hit to your comp.
The other reason - also related to what you're pointing out - is that if you quit six months into the year, you leave a significant chunk of money on the table. Silicon Valley has similar golden handcuffs in that regard though.
I agree, the power is a factor and that it's not about the company having a down year. This exists in Tech Software sales too. It's about not paying full price for a person who doesn't produce.
It's about shifting the budgeted comp of the under-performers to the over-performers. Inevitably, you will end up with a bunch of over-performers killing it, and the under-performers who can't make their number will leave. It's a giant selection process.
Good employees make bank. Bad employees quit and go somewhere with less downside risk.
Sure, tech companies have significant bonuses and RSUs as well. But the bonus is more limited in size. And the RSU vesting schedule is more fine-grained, explicitly defined in your employment contract, and the stock valuations are determined by the wider market.
Imagine working in finance for a year, expecting to earn $300k for a year's work, and then finding out at the end of the year that you're only going to get a fraction of that. It blows my mind that this doesn't scare more people.