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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
The writer is a former global head of equity capital markets at Bank of America and is now a managing director at Seda Experts.
January brings the usual headlines about bumper bonuses on Wall Street. After a strong 2025, many investment bankers will indeed be paid handsomely, but rewards have never been evenly shared, nor strictly proportional to performance. For every banker celebrating, several others quietly digest a disappointing number.
The worst off may even receive a “doughnut” — slang for a zero bonus — though this sits in a legal and reputational grey zone. Even though incentive awards are formally discretionary, firms worry that paying literally nothing could be construed as a breach of an implied contractual term. As a result, many maintain an unofficial floor, usually about 15 per cent of the prior year’s bonus. It is low enough to signal dissatisfaction, but high enough to mitigate legal risk.
Poor compensation outcomes have many causes, both systemic and personal. Individual revenue production may fall short. A business line may underperform. The overall pool may simply be too small to go around. Someone may land in the penalty box for upsetting a senior colleague or mishandling a project. And when money is tight, firms tend to protect established rainmakers while pushing the pain further down the food chain. Compensation is sometimes as much about relative standing as absolute contribution.
Anyone who stays long enough in investment banking experiences at least one bad comp round. Mine arrived in January 2003 when I was working for a Europe-based bank. Equity capital markets activity had slowed sharply, I struggled to generate business in a newly assigned region, and our team had begun the prior year by losing hundreds of millions of euros on a block trade in Vivendi Universal shares. Senior leadership assured us the loss would not affect pay, but the episode cast a long shadow.
My bonus turned out better than my worst fears, but far below the previous year and largely paid in stock vesting over several years. I suspected that others, better positioned politically, fared better despite similarly unremarkable numbers. I had an urge to complain but figured it would be counter-productive.
A disappointing bonus provokes predictable reactions. Some bankers protest. Others seethe in silence. The smarter response is to secure explicit acknowledgment from one’s manager that the year was an outlier rather than a revised judgment on long-term value.
This matters because banks apply something akin to a “same-store sales” logic to total compensation. A sharp pay reduction establishes a new, lower baseline from which recovery to previous levels is difficult. A 50-80 per cent rebound from one year to the next attracts scrutiny and rarely survives a management committee review, especially with others lobbying for a bigger share of a finite pool. Without formal recognition of exceptional circumstances, today’s haircut becomes tomorrow’s anchor.
Aggrieved bankers must be careful about widely broadcasting their displeasure. Publicly airing frustration signals to colleagues that you have fallen out of favour, and that perception weakens your standing and influence internally. Besides, colleagues are unlikely to care much about your perceived injustice.
For managers, delivering bad news is equally fraught. When I ran teams, I tried to reset comp expectations during performance reviews held six to eight weeks beforehand. The message did not always get through. Some bankers dismissed carefully worded criticisms as managerial hedging rather than a genuine warning. To paraphrase Simon and Garfunkel’s “The Boxer”, people hear what they want to hear and disregard the rest.
When the number finally arrives, both sides feel wronged. Bankers claim they were blindsided; managers think they signposted concerns. Here clarity becomes essential, for a low bonus serves one of two purposes. It is either an impetus to improve performance or the first step towards separation from the firm.
Discerning which is the manager’s critical task. If the meagre payout presages an exit, the goal is to deliver the message without debate and engineer a dignified departure. Arguing the merits is pointless; the decision has already been made. If, however, the firm wishes to retain the individual, the conversation takes a different direction. The manager must explain the “why”, acknowledge contributions and crucially map a credible path to recovery.
Comp season mirrors the industry itself. It is imperfect, political, cyclical and occasionally bruising. And the bonus cycle always turns, though sometimes, regrettably, without you on board.
