Bankers’ Pay Premium Is Narrowing
Investment bankers still get paid much more than other professionals, including doctors and engineers, but for the first time in a generation, the gap is narrowing.
In what remuneration experts say marks only the beginning of potentially the largest adjustment in decades, average pay per head in a sample of nine European and U.S. investment banks has fallen from 9.5 times the private sector average in 2006 to 5.8 times last year, according to research compiled by PwC exclusively for the FT.
The study shows that the pay premium that was built up amid the deregulation wave since the 1980s and the debt-fueled bonanza in the past decade is waning six years after the financial crisis.
"Bank pay has fallen further and faster than many people think, and 2012 has seen a material reallocation of returns from employees to shareholders," said Tom Gosling, a partner at PwC's rewards practice.
Last year, European banks in particular have cut pay, despite strongly rising profits, in a stark sign of how the changes go beyond cyclical adjustments.
Median profits at investment banks rose 28 percent in 2012, excluding the quirky effect of the valuation of their own debt. But pay fell 6 percent.
(Read More: EU Lawmakers to Close Deal on Banker Bonus Clampdown)
"There have always been wild swings, but what is different now is that pay has changed structurally," said Mark Quinn, a partner at Mercer's rewards practice.
But bankers warn of a growing rift between the U.S. and Europe, where regulatory pressure and slower revenue growth is pushing down pay much more markedly.
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"There is somewhat less pressure at U.S.— banks. They still pay more overall and they pay a much higher cash bonus," said Stephane Rambosson, a partner at executive research firm Veni Partners.
(Read More: The Threat to Wall Street From Europe's Bonus Cap)
The FT research compares a sample of nine investment banks with global companies in the FTSE 100 index, which given that two-thirds of these companies' revenues are derived from outside the UK is seen as a valid gauge.
The finding that investment bankers continue to earn 212,000 on average – more than a decade ago – may add fuel to the heated European debate about the sector's pay levels.
It comes after EU member states have unsettled bankers in London with a legislative plan to limit bonuses for the most senior staff and star traders to the same size as salaries.
(Read More: Isolated Britain Fails to Avert EU Bank Bonus Cap)
Investors and pay experts say pay will have to come down further but they are staunchly opposed to a cap.