Domestic broking houses are likely to be stingy and selective in doling out annual bonuses to their employees this year to cut fixed costs in the face of declining profit margins over the past two years.
?Brokerages will be careful not to increase their fixed costs in a market when revenues from clients are constantly decreasing. Needless to say, bonuses will be kept to a minimum and only the top performers will be entitled to get them,? said B Gopkumar, head of broking at Kotak Securities.
According to market participants, huge bonuses seem to be a thing of the past and even employees are keeping their expectations low this year. Increments too will be low, ranging from 7-8%, they said. This is the second consecutive year of dismal bonuses for brokerages. Last year, annual bonuses at several domestic broking houses were delayed, with employees having to settle for much less than what they had earlier expected. During a bull run, brokerages typically dole out 5-6 months? salary as bonus and top performers could even bag a full year?s salary as bonus.
According to Prasanth Prabhakaran, president ? retail broking, IIFL, low bonuses are a function of the prevalent market conditions and there has been no change in the parameters adopted to assess employee performance.
?It?s just that the revenues for most brokerages have almost halved in the last 4-5 years,? he said. He, however, reiterated that the top performers will be rewarded.
Blended yields for brokers have come down drastically in the past two years because of the structural shift in volume mix from cash towards the low-yield options segment.
Retail investors stayed away for much of FY12 as key benchmark indices shed over 11% during the period. Falling broking rates have also hit profit margins. Industry observers believe that the market will stay volatile this year as well, which means participation from retail investors is likely to remain subdued. ?Our market is now very much linked to the global markets and the political situation back home is not that stable either. So, it is difficult to say if Indian equities will make a comeback this year,? said Prabhakaran.
To counter the falling revenues, top domestic brokers are diversifying into segments such as retail lending and wealth advisory. Together, these businesses could contribute 50% of the broking houses? profits in 2012-13 compared with 25% in 2010-11, according to estimates made by rating agency Crisil in its report earlier this year.