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Investment banks cut salaries

17/12/13

Global investment banks look set to cut their salaries for the third year in a row, as the sector attempts to move on from its reputation for excessive remuneration.

While bonuses and other reward mechanisms remain relatively strong compared to other industries, it is clear shareholder returns are now considered more important than offering employees the biggest pay packages, reports the Financial Times.

According to the news provider's analysis of the quarterly reports of major investment banks, nine of the largest institutions in the US and Europe are shrinking their overall outgoing on pay by around five per cent.

This includes salaries, bonuses and other benefits, the newspaper's research revealed. Profits increased by a tenth over the same period, suggesting that the move to curb remuneration is not wholly motivated by attempts to be more parlous.

Tom Gosling, head of PwC's reward practice, said this trend has emerged over the last two years as banks place the happiness of their shareholders at the core of their business model.

"They need to do this, as most banks are still delivering single-digit return on equity ... and the industry continues to face significant regulatory challenges," he declared.

Investment banking returns are not what they used to be in the boom years, with the sluggish global economy and shift in trading patterns making it harder for firms to rake in such impressive profits.

However, this is not a universal picture, with European banks appearing to slash bonuses with considerably more enthusiasm than their counterparts in the US.

In Europe, Royal Bank of Scotland set aside 27 per cent less for investment bank pay in the first three quarters of the year, with the likes of HSBC and Barclays also making major changes.

Goldman Sachs, Morgan Stanley and JPMorgan all reduced bonuses by less than five per cent, suggesting there is less pressure on American firms to reduce their salary rates.

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