The Bonus Hell of Being a 3B

The "guarantee" in a bonus is often bracketed with get out clauses like "subject to adequate performance".

However, a factor missing from many views of the bonus process s that a large % of bonus is not for what you have done, but your value to your manager next year. Maybe your value to the firm contributes, but don't bet on it.

The process for bonus varies, and is opaque even if like me you are a student of the topic with input from multiple sources.

However, it is worth also plugging in that if people got the bonus they deserve, then I'd have to get a proper job :) Partly this is noise in the manager's measurement of your value, but also because he typically has to justify it, and has to do a complex balancing act with other members of the team.

Some firms, typically banks who at their heart still think of themselves as "retail" in their investment banking operations have bizarre rules on how bonuses may be allocated. Sometimes this is caps, sometimes it is a rule that fixed components of package cannot be >X.

The official P&D model for this bonus season divides the world into three types.

1: People who seem themselves as lucky to have a job. Their bonus will not be great. Credit is the obvious example, but other parts like sales and prime brokerage, seem to be hit.

2: People in risk, IT, HR, product control etc whose bonus is some function of the health of the company and some random noise from their manager.

3: the third type divides into two. Type 3 people work in business areas unaffected by the shit this summer. FX and Commodities for instance or prop trading units whose strategies happened to prosper in these conditions. Type 3A people will get a much greater bonus if they have done well, but...
A lot of people will be type 3B, in that they work for business units without the political power to stop their bonus pool being used to prop up the bonus pools of more politically adept units. This is consistent with a reasonable view, in that to pay those who are perceived to have longer term value for the bank, you have to raid the BPs of more currently successful units. This may appear to be a rational, if unfair process, but recall that power in the bank in underwritten by earnings, so there is inherently a lag.
A useful part of economics is agency which attempts to model how managers make decisions about their firm to maximise personal utility. We should thus ask who is making these decisions, and what their agenda may be.

For the past, when Credit was on the rise, bonuses were held down to subsidise fixed income, or even cash equity traders. Now that we are in a world where Credit has been successful, they will defend their patch against (say) commodities.

Thus we are going to see egregious mispricing in the market, a condition that will persist for some time due the lower ability of firms to exploit the arbitrage in this part of the labour markets.

We've already started talking to people who see themselves as 3Bs. Happy is not the right word.

My Boss Wants Me Dead 5 : Aftermath

You are going to leave your quant job, maybe your ex-boss is happy about that, may be he is not, but it's up there with death and taxes.
In some cases the relationship has broken down big time, and the boundary between being sacked and resigning is a bit blurred.
In the "my boss wants me dead" series (soon to be a film starring Danny de Vito as your boss and Merryl Streep as you), I've covered how you should present your exit to future employers, pimps and HR.
References are a grey and murky area of recruitment. As a HH I am obliged to look into peoples recent career, and am confident that I am frequently lied to, and never ever get the full truth. As a pimp, my job is sometimes a "professional receiver of lies". I have rung managers who sacked the candidate who are quite happy to say what a nice chap he is, and that their work was great. This is in cases where the candidate has approached us in a situation where the "dead rat in your coffee" from the Guide is not far from the truth.
A long time ago a written reference from a bank was an honest appraisal of your as a person, often with some useful detail.
But the risks of doing this are great for the bank in these times where people sue for bad things being written about them. The last person I sacked had to go when I found them unconscious, drunk, snoring loudly and in a compromising position. But even then I'm not 100% in the clear since I had no witnesses to the situation and a good lawyer could claim sickness or some other excuse.
In at least one case a bank (not one of ours) accidentally gave a bad reference to the wrong person.
That was both embarrassing and expensive.

So you can't always expect to get much of a reference from your ex-employer. No upside, but a possible deep hole.
If you bother to read your contract of employment, we've found that most firms have a clause saying "you must not give references, at all ever, get HR to do it. Just don't OK ?" or words to that effect.
Doing manky stuff like that all by itself justifies the costs of HR departments. They don't care about you as an individual, and to quote the head HR at a household name firm "our job is to protect management from the staff"

Live with the fact that years of loyal service get reported as "She joine on this date, left on this date. We paid her some money.
What you must not do is what I found on the Wilmott forums this week, and harass HR over this thin document.
This is deep policy for the bank, and a junior HR who does not conform is risking their job. There is no upside at all for you, and having the person who does your reference annoyed at you is not good in any way at all.