China-premium bankers going for a big discount

PUBLISHED : Wednesday, 06 March, 2013, 12:00am
UPDATED : Wednesday, 06 March, 2013, 5:05am

Investment bankers in China can say goodbye to big pay packages.

Compensation for managing directors at global financial firms in the country, including Morgan Stanley, JP Morgan Chase and Deutsche Bank, has fallen as much as 60 per cent since 2010 to the lowest level in a decade, according to five senior bankers with knowledge of employee pay. They asked not to be identified because they are not authorised to discuss the matter.

China managing directors now earn less than their counterparts in the United States, and their pay is on par with those in continental Europe and Britain, where lower bonus pools last year meant a 15 per cent cut in compensation.

A decline in fees resulting from a dearth of deals erased the so-called China premium enjoyed by bankers focusing on the country, the people said.

"China is no longer a sacred cow," said Christian Brun, a founder of Wellesley Partners, a Hong Kong-based executive search firm. "This is the first year in a long time that the bankers there haven't been singled out for special treatment."

Managing directors working on China deals, most of them based in Hong Kong and Beijing, earned between US$900,000 and US$1.3 million in salary, bonus and stock options last year, according to the five bankers.

Compensation was the lowest since 2003, when the Sars epidemic killed about 800 people worldwide and put Hong Kong on the brink of recession, they said. Pay that year ranged from US$500,000 to US$800,000, two of the bankers said.

Brun said China managing directors' compensation ranged from US$1.25 million to US$3 million between 2005 and 2010, when the number of overseas initial public offerings of Chinese companies peaked at 106, totalling US$17.8 billion, according to Bloomberg data.

Compensation for a managing director in North America from 2010 to last year ranged from US$1.2 million to US$2.01 million, said Jonathan Astbury, head of emerging markets at Altus Partners, an executive search firm based in London. Bankers in Europe earned US$850,000 to US$1.77 million last year, he said.

Pay in China in 2010 "went beyond the market, and now they're back to market reality", said Richard Hoon, chief executive of executive search firm I Search Worldwide. The China premium, which refers to higher compensation awarded to bankers who know the language and business culture of China, rose when soaring IPOs saw banks competing for employees who could secure deals.

Managing director is the highest rank below top leadership positions at most investment banks. Managing directors play a key role in the IPO process, including advising clients on pricing and lining up buyers for shares.