Investment banks slashed the 2011 bonuses paid to staff in Asia by 30 to 40 per cent from 2010 payouts, and scrapped some non-cash benefits including housing allowances and free home leave for expatriate employees.
The cuts come as a weak trading environment and a thin pipeline of deal making cloud the earnings outlook for the current year.
According to financial industry sources, most major investment banks including Morgan Stanley, Citigroup, Bank of America Merrill Lynch, and Deutsche Bank, announced sharply reduced 2011 bonus plans to staff in the past few weeks.
European investment bank Credit Suisse announced its bonus plan to Asian staff on January 30 and the total bonus payout was cut by slightly more than 40 per cent compared with its 2010 bonuses, sources told the South China Morning Post.
Morgan Stanley announced its bonus plan late last month and the bonus pool was cut by about 30 per cent. The Wall Street bank also told staff that cash payouts would be capped at US$125,000 and above this level they would be paid in cash and stocks.
Staff at Citi, the world's largest financial services group before it was badly hit in the 2008 financial crisis, saw their bonus pool cut by around 30 per cent as well.
In 2008, at the peak of the global financial crisis when Lehman Brothers collapsed, many investment banks decided to scrap housing allowances for expatriate staff working in Asia. Some banks quietly reinstated the allowances when the market improved, but this year many - including Deutsche - are once again either scrapping the allowances or introducing conditions.
Housing allowances paid in the sector can range wildly. For example, a managing director at Citi used to get a monthly housing allowance of HK$250,000, while a junior associate at a major international bank may get between HK$15,000 and HK$25,000 per month if she or he is hired abroad and then sent to Hong Kong.
A source in the recruitment industry said banks were localising remuneration packages by paying a lump-sum base salary that did not include a housing allowance, an education allowance and sponsorship for air tickets, in order to keep costs low.
He also said bankers, much against their will, were being forced to take stocks instead of cash for year-end bonuses.
The shares would often be paid in instalments over three years or more, increasing the uncertainty about the actual cash value of the bonus as stock prices could fluctuate.
Still, a newly promoted or hired managing director at Morgan Stanley can earn between US$400,000 and US$500,000 a year in a base salary for 2012, and this is considered a benchmark for managing director-level staff at other banks, according to the sources.
Goldman Sachs is considered to have the best paid employees in the world of investment banking.
Bankers have recently begun complaining about the stress and expense of living and working in Hong Kong.
Robin Hull, a 55-year-old former Standard Chartered banker, committed suicide in November after being unemployed for about two years.
At Deutsche's office in Hong Kong, employees were told associate-level staff, usually fresh MBA graduates in their first banking job, would receive an average of less than six months of their annual salary as a bonus and the bonus would be paid entirely in cash.
'This is pretty good,' said another of the sources. 'The average bonus payouts for junior staff at investment banks this year might have been three or four months salary.'
Investment bankers are not alone in suffering downsized bonuses. Hedge funds had a tough year in 2011, but were able to keep a lid on business costs as base salaries were kept at a pre-2008 financial crisis level, with a newly hired managing director being paid a base salary of US$150,000.
Big bank bucks
Major investment bank snapshot for 2011:
Bonus pool: down 30 to 40 per cent
Base salary for a managing-director-level job: US$400,000 to US$500,000 a year;
Housing allowance for expatriate employees: dfficult to get now; reserved for very senior executives
Bonus for associate level staff: equal to three or four months of annual salary
SOURCE: SCMP research