No gold bars but higher salaries for London bankers with bonus cap

Reuters
File photo of a traffic sign in front of the skyline of the the Canary Wharf financial district in London
.

View photo

A traffic sign is pictured in front of the skyline of the the Canary Wharf financial district in London in this October 21, 2010 file photo. REUTERS/Luke Macgregor/Files

By Steve Slater

LONDON (Reuters) - In the 1990s, London-based investment banks rewarded top employees with gold bars, fine wine and oriental carpets to dent the impact of higher payroll taxes.

Now, with public anger at banking excess near all time highs, they are looking at less flashy ways to cope with curbs on bonuses, including a new monthly allowance.

European rules due to take force in January say bankers' bonuses cannot exceed annual salary, or twice that if shareholders approve, to curb the sort of excessive risk-taking blamed for the 2008-09 financial crisis.

Salaries have not dropped in line with banks' revenues since the crisis, consultancy McKinskey said this month, despite a series of huge, taxpayer-funded bank bailouts.

At least 10,000 bankers, most of them in London, take home more than half a million euros ($678,700), according to industry sources, more than 10 times the average wage in wealthier European states.

With much of pay currently in bonuses, the biggest banks in London, including Deutsche Bank, Barclays and JP Morgan, look certain to bump up salaries.

Britain and the banks in what is Europe's financial capital argue the new rules play into the hands of competing financial centers such as New York, Hong Kong and Singapore.

They also say it provides less scope to claw back pay if it turns out an individual had taken too much risk, and limits the ability to pay bonuses in shares awarded in the future.

The cap affects all "risk taking" staff for EU banks and the European staff of those outside the trading bloc, so all major investment banks are affected, including U.S. lenders such as JP Morgan and Goldman Sachs.

"There's absolutely no question that fixed pay is going to rise," said Jon Terry, partner at PwC. "But the standard response may not be by increases in salary, by far the most common response will be the introduction of allowances.

"They are a bit more flexible, but it will fundamentally involve a shift of a proportion of variable pay into fixed pay."

Britain's Barclays last week said it will increase fixed pay using such a structure. It plans to give bankers in specific risk-taking roles an additional monthly payment, set at the start of the year and to run for 12 months.

The top-up will not be included in pension calculations and could rise or fall depending on demand for a particular role.

Other banks, such as JPMorgan, Deutsche Bank and HSBC, are expected to consider similar plans, and could vary the structure with longer payment terms or by paying it quarterly.

RISKIER?

While raising fixed pay is likely to be the most obvious response to the bonus cap, generous housing allowances and loyalty payments could also be considered.

HSBC Chief Executive Stuart Gulliver said he would "take whatever steps necessary to protect the competitiveness" of his bank, noting that three-quarters of staff affected by the rules work outside the European economic area.

PwC's Terry said more than 80 percent of 40 banks surveyed by his firm last month said they planned to use allowances as their primary response to the bonus cap.

The British government has launched a legal challenge to the legislation arguing that it will force up fixed salaries, making the banks riskier rather than safer.

"Firms' remuneration strategies may become less flexible which could make adjustment during periods of stress more difficult, undermining financial stability," the UK's Prudential Regulation Authority said.

But other countries do not think the EU is going far enough. The Dutch government on Tuesday said it will cap bonuses at banks at no more than 20 percent of total salary from 2015, although overseas staff could get higher amounts.

PUBLIC DISAPPROVAL

The European Banking Authority, the watchdog overseeing the rule, said any staff earning more than 500,000 euros a year are likely to be affected.

It could also include any employee whose bonus is at least 75,000 euros and 75 percent of their fixed pay, or anyone paid more than the lowest member of senior management. The rules will be finalized early next year.

Some 3,175 bankers earned 1 million euros or more in the EU in 2011, indicating at least 10,000 people would be caught by a rule covering any employee earning half that amount, according to published salary scales.

The British Bankers' Association has said more than 35,000 people could be affected at 10 major banks it surveyed, representing 5.5 percent of their global workforce.

More than three-quarters of the top EU bank earners were based in London, fuelling the city's property prices, swanky restaurants and upmarket shops.

In 2011, the bonuses of London's top bankers were 3.5 times fixed pay, EBA data showed, meaning their employers would need to switch almost 400 million euros to fixed pay from bonuses to meet the new rules in aggregate.

The rules come into effect in January, but will not apply to bonuses for 2013, which are typically paid in February and March.

Barclays said it discussed its plan with regulators and shareholders.

Investors are keen for banks to rein in pay, and George Dallas, director of corporate governance at F&C Investments, said banks need to follow the spirit of the law as well as the letter to avoid "further regulatory scrutiny and public disapproval".

"How banks respond to this (bonus cap) regulation will be one of the key issues in 2014," Dallas said.

Bonuses for 2013 at most investment banks are expected to be flat or slightly lower than the year before, following a drop in revenues.

($1 = 0.7367 euros)

(Editing by Carmel Crimmins and Philippa Fletcher)

Rates

View Comments (10)

Recommended for You

  • Tycoon buys 30 Rolls-Royces for Macau hotel

    A Hong Kong tycoon has placed the biggest ever order for Rolls-Royce cars, agreeing to buy 30 Phantoms to chauffeur guests at a luxury resort he's building in the global gambling capital of Macau. Stephen Hung's $20 million purchase surpasses the 14 Phantoms bought by Hong Kong's Peninsula Hotel in…

    Associated Press
  • Our Best-Ever Value Plan for Your Business

    New prices on our Mobile Share Value Plans on the nation's most reliable 4G LTE network.

    AdChoicesAT&T® Small BusinessSponsored
  • Tycoon's arrest sends shock wave through Russia

    Tycoon's arrest sends shock wave through Russia MOSCOW (AP) — The arrest of a Russian telecoms and oil tycoon has sent shock waves through the country's business community, with some fearing a return to the dark days of a decade ago, when the Kremlin asserted its power by imprisoning the country's…

    Associated Press
  • Before You Buy Alibaba, Check Out 4 Top China Stocks

    Before You Buy Alibaba, Check Out 4 Top China Stocks While investors gear up for Alibaba Group 's (BABA) hotly anticipated initial public offering, don't forget about other Chinese stocks that are worth keeping an eye on. Today's Young Guns Screen of

    Investor's Business Daily
  • As Fed takes baby steps, Cramer's trick for profit

    In turn, Cramer says making money in the market, involves looking at the environment through the lens of the Fed. "The trick is to remember that they speak for the common person," Cramer said. "The Fed wants the common person to make money." With that backdrop always in mind, Cramer says it becomes…

    CNBC
  • "The Retiree Next Door": How successful retirees stretch their savings

    "The Retiree Next Door": How successful retirees stretch their savingsBy the time she hit her late 40s, Toni Eugenia wasn’t sure she would ever be able to retire. Eugenia, 56, a pharmacy technician who lived in Houston, was nearly $200,000 in debt and

    Yahoo Finance
  • Play

    Citi, Bank of America Offer Discounted Mortgages

    Citigroup and Bank of America will offer mortgages at discounted interest rates to help borrowers with low incomes or subprime credit. AnnaMaria Andriotis joins MoneyBeat. Photo: Getty.

    WSJ Live
  • Costco Stores in Canada to Stop Taking American Express

    “The credit card relationship between American Express and Costco Wholesale Canada will not be renewed when it expires” on Dec. 31, the company said today in an e-mail to Canadian customers. The message was attributed to Lorelle Gilpin, vice president of marketing and membership for Costco…

    Bloomberg
  • Enjoy this refreshing Triple Play offer!

    Get FIOS TV Mundo starting at $79.99/mo. w/ no annual contract + 2-yr. price guarantee. Or sign for 2 yrs. & get a $300 prepaid Visa. Click here.

    AdChoicesVerizon FiOS ®Sponsored
  • CNBC Anchor Calls Out Fed-Hater Bill Fleckenstein In Startling Shouting Match

    CNBC Bill Fleckenstein of Fleckenstein Capital appeared on CNBC's Futures Now program on Tuesday. Futures Now host Jackie DeAngelis came out swinging, asking Fleckenstein right at the top if he was willing to admit that he had misunderstood monetary policy. Sounding taken aback, Fleckenstein…

    Business Insider
  • Beanie Babies creator's sentence debated in court

    Beanie Babies creator's sentence debated in court CHICAGO (AP) — Federal prosecutors seeking to put the billionaire creator of Beanie Babies in prison for hiding millions in Swiss bank accounts told appellate court judges Wednesday that the toymaker's sentence of probation threatens to erode the…

    Associated Press
  • Apple to unveil new iPads, operating system on Oct. 21 : report

    The company plans to unveil the sixth generation of its iPad and the third edition of the iPad mini, as well as its operating system OS X Yosemite, which has undergone a complete visual overhaul, the Internet news website said. Trudy Muller, a spokeswoman for Apple, declined to comment. The iPad is…

    Reuters
  • Margaritaville casino owners seek bankruptcy

    The owner of Biloxi's Margaritaville casino has filed for Chapter 11 bankruptcy protection Tuesday, only hours before a hearing where the landlord aimed to seize the property. The filing by MVB Holding LLC in U.S. Don Dornan, a lawyer for landlord Clay Point LLC, said the company had planned to ask…

    Associated Press
  • Embraer to sell 50 E-175 jets to Republic in $2.1 billion deal

    Brazil's Embraer SA, the world's third largest commercial planemaker, said on Wednesday it booked a firm order from U.S. The deal, which will be included in Embraer's order book for the third quarter, is valued at $2.1 billion, the planemaker said in a securities filing. The planes will be operated…

    Reuters
  • Gilead Stock Is Falling On These Drug Setbacks

    Gilead Stock Is Falling On These Drug Setbacks Gilead Sciences (GILD) shares are backsliding Wednesday on news that the patient drop-out rate for hepatitis C drug Sovaldi is quadruple that of clinical trials. In addition, the biotech's Phase 2 study results

    Investor's Business Daily
  • A Lot's Changed Since You Graduated High School

    Including the cost of college tuition. Start saving for a child's education today with the Delaware College Investment Plan.

    AdChoicesFidelity InvestmentsSponsored
  • Here's What Mark Cuban Wishes He Knew About Money In His 20s

    Cuban is the owner of the Dallas Mavericks basketball team. Billionaire investor and entrepreneur Mark Cuban is generous with his advice. When we asked him what he wishes he'd known about money in his 20s, he said:

    Business Insider
  • SHOE COMPANY: Our CEO Just Disappeared And Most Of The Money Is Gone

    "and like that: he's gone." This is an actual headline from a company press release: "CEO and COO disappeared, most of the company's cash missing." (Via FastFT) In a statement, German-based shoe company Ultrasonic said its CFO,  Chi Kwong Clifford Chan, has been unable to reach the company's CEO,…

    Business Insider
  • Don't buy Alibaba stock: 'Dean of Valuation'

    Investors should steer clear of Alibaba , valuation expert Aswath Damodaran said Wednesday. On CNBC's " Fast Money ," Damodaran, a professor of finance at New York University's Stern School of Business, noted that he was looking at Alibaba stock from the perspective of a long-term investor, not a…

    CNBC
  • 10 rock-solid stocks for conservative investors

    10 rock-solid stocks for conservative investors Shares with low volatility can beat their indexes with less risk Bloomberg News/Landov U.S. Bancorp is the cheapest S&P 500 stock

    MarketWatch
  • Play

    What the Fed Meeting Means for Bonds

    Janet Yellen & Co. are expected to hint at their timetable for raising interest rates. Here's how investors should prepare ahead of the meeting.

    WSJ Live
  • Billionaire Investor Says Chinese People Work Harder And Western Companies Could Face Deep Trouble After Alibaba IPO

    Michael Moritz, the chairman of VC firm Sequoia Capital, is a huge fan of Chinese internet companies and reiterated his enthusiasm for the Chinese market in an interview with The Wall Street Journal Wednesday. The billionaire investor described the Alibaba IPO as a “major landmark event” that is as…

    Business Insider
  • 1 Tip To Lose Belly Fat

    It's Hollywood's Hottest Diet And Gets Rid Of Stubborn Fat Areas Like Nothing Else.

    AdChoicesagoodcooksSponsored
  • Top Analyst Upgrades and Downgrades: AEP, BHP, GE, Incyte, 3M, Tyco, Under Armour and More

    Top Analyst Upgrades and Downgrades: AEP, BHP, GE, Incyte, 3M, Tyco, Under Armour and More Stocks were firm on Wednesday morning ahead of the FOMC meeting outcome. Tuesday’s rally may have sparked higher interest again, and investors are looking for bargains

    24/7 Wall St.