Skip to main content

European bank bonuses face 20% cut

By Daniel Schäfer, FT.com
updated 9:20 PM EST, Sun February 3, 2013
European investment banks, including UBS, are set to cut their bonus pools in the coming weeks by 20%.
European investment banks, including UBS, are set to cut their bonus pools in the coming weeks by 20%.
STORY HIGHLIGHTS
  • European investment banks to cut their bonus pools in coming weeks by 20%
  • Cuts partly driven by headcount reductions to scale back investment banking
  • Cuts also made to allocate more returns to investors, improve banks' reputations

(CNN) -- European investment banks are set to cut their bonus pools in the coming weeks by 20 per cent in a move that will exacerbate the pay gap with their US rivals.

Consultants and bankers estimate that banks including Barclays, Credit Suisse and UBS will reduce overall group bonus levels for 2012 by up to 15 per cent but agree that the cuts will be nearer one-fifth in their investment banking arms.

"This is partly driven by headcount reductions as banks scale back investment banking activity," said Tom Gosling, head of PwC's reward practice. "But also bank boards in Europe are making a concerted effort to allocate a larger share of returns to investors and to reduce bonuses in response to the reputational issues."

But analysts said banks were walking a tightrope as they were torn between often clashing demands of investors, regulators and employees.

Mark Cameron, chief operating officer at recruitment firm Astbury Marsden, said: "Some middle managers expect higher bonuses given that performance at most banks has improved. But that conflicts with what boards will have to do."

Deutsche Bank this week underscored this balancing act when the bank said it had reduced its 2012 bonus pool by 11 per cent to €3.2bn.

But to reduce the burden on future profits and in a concession to staff, the bank increased the cap on immediate payouts by half to €300,000, although it lowered deferred payouts. And its compensation ratio -- a measure closely watched by investors that contrasts overall pay with revenues -- increased slightly from 39.5 per cent to 40.1 per cent. This is higher than its 35 per cent target and highlights how revenues remained flat while deferred bonuses weighed on costs.

By contrast, a sharp revenue increase allowed US rival Goldman Sachs to increase average pay and still bring down its ratio by more than 4 percentage points to 37.9 per cent.

Analysts say UBS and Credit Suisse in particular will struggle to pay less than 50 per cent of their group-wide revenues to staff as expected income slows. In the first nine months, the ratio already stood at 53 and 50 per cent respectively.

"European banks face a dilemma -- their regulators, investors, and politicians are putting them under more pressure to reduce pay than US firms are facing. Yet in a global industry they are competing for the same talent and so can't let the pay gap get too wide," Mr Gosling said.

But with the industry slashing tens of thousands of jobs, recruitment experts said there is much less willingness to retain talent at any price.

Some banks are even starting to look at base salaries, which in the City of London on average rose 1.9 per cent last year, according to Astbury Marsden.

"We will see further, but more modest, cuts in bankers' pay this year. In the mid-management level we will also see base salaries coming under pressure," Mr Cameron said.

ADVERTISEMENT
Part of complete coverage on
updated 8:36 AM EDT, Mon August 18, 2014
Europe's deteriorating relationship with Russia has hit the region's growth, even before new food sanctions begin to bite.
updated 12:34 PM EDT, Wed July 16, 2014
With cyberattacks on the rise and here to stay, it's a modern-day challenge for people and businesses to get smarter about preventing them.
updated 9:24 AM EDT, Thu August 14, 2014
Airstrikes, rebels seizing control of oil fields, plus a severe refugee crisis are a recipe for market panic. So why are Iraq oil prices stable?
updated 11:24 AM EDT, Sun July 20, 2014
Evidence points to pro-Russian separatists as perpetrators of the attack and Vladimir Putin is facing uncomfortable questions, David Clark writes.
updated 10:40 AM EDT, Tue August 5, 2014
The biggest Ebola outbreak in history is taking its toll in Western Africa, hitting some of West Africa's most vulnerable economies.
updated 5:02 AM EDT, Thu July 3, 2014
Macau has overtaken Switzerland in the wealth stakes, being named the world's fourth richest territory by the World Bank.
updated 10:47 AM EDT, Fri July 18, 2014
Saudi Arabian Bateel brand is best known for its delectable dates but it now has more than a dozen cafes and a new bakery in the works.
updated 7:00 AM EDT, Thu July 17, 2014
A British nanotech company has created what it says is the world's darkest material. It is so dark the human eye can't discern its shape and form.
updated 12:02 PM EDT, Wed July 16, 2014
Jibo robot is designed to be an organizer, educator and assist family members. CNN's Maggie Lake met him and says she was impressed with his skills.
updated 5:09 PM EDT, Fri July 18, 2014
American burger joints have sprung up all over London, but how to know which ones are best? CNN's Jim Boulden investigates.
updated 8:22 AM EDT, Wed June 18, 2014
Sandwiched in between Iraq and Syria, Jordan's destiny seems to be one of a constant struggle for survival. John Defterios explains.
updated 11:02 AM EDT, Wed June 18, 2014
At the last football World Cup, it was all about 3D. This time around, it's nothing less than 4K.
updated 6:58 AM EDT, Wed July 16, 2014
Bob Mazzer has photographed inside London's Tube network for 40 years. He's captured history.
updated 1:12 PM EDT, Fri July 18, 2014
Exotic animals are becoming a profitable business opportunity for Nicaraguan entrepreneurs. CNN's Rafael Romo reports.
updated 11:29 AM EDT, Fri June 13, 2014
Iraq produces 3.3 million barrels per day and has the world's fourth-largest oil reserves. But the current crisis is putting all this in danger.
updated 8:22 AM EDT, Wed June 18, 2014
Sandwiched in between Iraq and Syria, Jordan's destiny seems to be one of a constant struggle for survival. John Defterios explains.
updated 9:14 AM EDT, Mon June 16, 2014
The gas standoff between Russia and Ukraine could have a knock-on effect on Europe. Explore this map to find out why is the EU nervous.
updated 6:58 AM EDT, Wed July 16, 2014
Bob Mazzer has photographed inside London's Tube network for 40 years. He's captured history.
updated 8:06 AM EDT, Tue June 17, 2014
The UK capital promotes its tech stars and shows it can compete with Silicon Valley. Here are five companies that pitch to make it big.
ADVERTISEMENT