Bonus squeeze as EU banks feel investor ire

Most European investment bankers received smaller bonuses in 2016 as their employers cut costs and sought to meet shareholder demands for a greater share of profits. But while bankers’ pay has been the target of political and public anger, the financial services industry is still where the big bucks are, with the average salary about 30 per cent higher than the average wage in Britain, government statistics show. Barclays followed other banks in Europe on Thursday by saying it had cut its bonus pool, in the case of the British bank for the third year running, despite rising profits at its investment bank. Barclays said it was paying £1.5 billion, down 56 per cent from £3.5 billion in 2010.
Such bonuses were blamed for encouraging risk-taking and contributing to the 2007-2009 financial crisis, causing European regulators to cap them at 100 per cent of a fixed salary, or twice that with shareholder approval.
Banks tried to get round this by upping fixed pay and awarding allowances on a monthly or quarterly basis to bump up basic pay to senior staff. But that was met with calls for more restraint by shareholders, angry at European banks paying large salaries when most were struggling to turn a profit.
This appears to have begun to have an impact, with a fall of around 8 per cent in bankers’ total pay globally in 2016, and bonuses down by more than 10 per cent, research firm Coalition estimated. European banks, who have most of their investment bankers based in London, were worst hit on aggregate. “The bonus pool is down and performance is up. So that should be a good thing for our shareholders,” Jes Staley, CEO of Barclays said after posting results. HSBC said on Tuesday it had cut its bonus pool by 12 per cent to $3 billion in 2016.
As the pressure on their business from regulation has mounted, banks have taken a tougher line on staff performance, rewarding more to those who generated the most returns in a bid to retain talent.
“This year differences in bonus pay at HSBC are extreme,” one source familiar with the matter said. “The overall bonus pool has gone down but distribution varies a lot. The high-performers will get paid way more, whereas average bankers will get much less.”
The five highest paid employees at HSBC earned a combined $45 million, with the top earner taking home over $12.9 million.
Meanwhile, more than 360 of the bank’s employees earned over 1 million euros ($1.05 million) in the year, according to HSBC’s annual report. At Barclays, 11 employees were paid more than £5 million in 2016, versus nine in 2015. Of the 364 bankers paid over 1 million pounds, 62 per cent were based in the US and 32 per cent in Britain, according to its annual report.
George Kuznetzov, head of research at Coalition, said banks are also able to pay out less by employing fewer senior bankers and hiring junior, less expensive, staff instead. “One of the main drivers is the ‘juniorisation’ of the trading floor and some headcount reductions early in the year,” Kuznetzov said. — Reuters