Raising banker compensation in the midst of a pandemic isn’t the best look. But this is the dilemma facing Wall Street after a bumper year for performance. Pay too little and you lose your stars; pay too much and you infuriate the public.

Across investment banking it will be a year to remember, and not just because of the work from home experiment. Slumping economies and soaring unemployment have prompted central banks and governments to unleash unprecedented monetary and fiscal stimulus. With the world awash with cash, companies have been selling debt at a record pace, while market volatility has bolstered banks’ revenue from trading stocks and bonds.

With the exception of an M&A slowdown, securities firms have been firing on all cylinders. Three consecutive quarters of substantial profit leave them on course for their best year since the financial crisis.

How, and whether, to reward this is an awkward question, and it’s one that UBS Group AG, Credit Suisse Group AG and Deutsche Bank AG are all grappling with. Should traders really be the beneficiaries of public policies designed to help struggling individuals — or of the market swings caused by a global emergency? Unfortunately, it’s hard to see how banks can avoid paying out. Investment banking is a competitive sport, and the winners want the garlands. Only regulators can stand in their way.

If one firm broke ranks and kept a lid on compensation, others would seize the chance to lure their best rainmakers away with better pay. European banks have grown tired of seeing U.S. rivals cherry-pick their big hitters. While the Wall Street giants have been managing expectations on bonuses, Goldman Sachs Group Inc. and Morgan Stanley have signaled they’ll pay for performance.

We’ve argued before that the days of lavish compensation may have been over, and that’s certainly true for many bankers. But the pandemic has strengthened the hand of the star names. Lockdowns and working from home have made it much harder to solicit new clients because of restricted face-to-face contact, meaning established relationships are crucial.

Replacing staff is also tough when everyone’s working remotely. Firms can’t solve the problem by promoting internally, either: Junior bankers aren’t the ones with bulging Rolodexes.

Banks will find it tough to justify bonuses, however, and not just externally. Many firms’ traditional banking divisions, such as commercial lending, are struggling because of the distressed economy and lower interest rates. Net profit at the group level is often under pressure as provisions for bad loans eat into the record trading income. Arguing that traders should get a bigger slice of profit won’t be easy.

This explains why some banks are getting creative with their rewards. Switzerland’s UBS has found a clever way to dodge the dreaded bonus headlines by boosting fixed salaries for its top earners retroactively from Jan. 1, 2020. 

Such approaches also circumvent the biggest impediment to boosting bonuses: regulators. Banks in the European Union are de facto barred by the European Central Bank from paying dividends until the end of 2020, and they’re expected to show “extreme moderation” on executive pay. And even though the ECB might relax its dividend recommendations next year, it doesn’t follow automatically that there will be a change on compensation. Expect more banks to copy the UBS model on higher basic salaries, as well as using deferred pay and stock awards rather than cash payouts.

Unlike during the global financial crisis, lenders have escaped public opprobrium so far. But they’re walking a tightrope. They’ve been the face of governments’ crisis loan handouts and payment moratoria; soon they’ll become the debt collectors as the funding taps are turned off and economies sputter. They may not have much choice in trying to match the demands of their top earners. But how they balance that with the broader needs of their businesses will matter. 

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Marcus Ashworth is a Bloomberg Opinion columnist covering European markets. He spent three decades in the banking industry, most recently as chief markets strategist at Haitong Securities in London.

Elisa Martinuzzi is a Bloomberg Opinion columnist covering finance. She is a former managing editor for European finance at Bloomberg News.

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