The world’s biggest investment banks are to overhaul their pay structures to differentiate between bankers based in Europe and those who work elsewhere, afterEuropean regulators’ clampdown on bonuses.
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Many US and Swiss banks are considering paying higher salaries and lower bonuses to top bankers based in the European Union, mostly in London, to ensure they comply with new instructions from the Committee of European Banking Supervisors (CEBS), the pan-EU regulator, limiting cash pay-outs.
Some European politicians had expected that non-EU banks would apply their rules globally on a voluntary basis.
But one senior European banker said: “Politicians are naïve if they think we will impose EU rules on a global basis. The ironic effect will be another hike in salaries, which is a fixed cost, which rather makes a nonsense of the idea of pay for performance.”
Most banks insist that the pay of non-EU based staff will not be brought into line with the stricter European regime. “We’re going to have to pay people differently in different parts of the world,” said one top US banker. “There will be higher salaries for people in the UK, but lower bonuses. In the US, bonuses will be slightly higher.”
One Swiss banker said: “There will have to be different structures for different people. We probably need to increase the salary of the person in London.”
CEBS said this month that cash bonuses at banks in the EU would be capped at as low as 20 percent of total pay. Large institutions must defer as much as 60 percent of top bankers’ bonuses over three to five years and impose a separate “retention period” on all share-based incentives. The UK’s Financial Services Authority on Friday announced its detailed application of those rules.
Banks with European arms must adopt the regime from January. JPMorgan , Goldman Sachs , UBS and Credit Suisse are all known to be working on plans to restructure packages differently for EU staff.
Although non-EU banks will be left with far more complex global arrangements, the rules are more burdensome for EU banks, which must apply the rules on a global basis. In particular Standard Chartered and HSBC in the UK, as well as Germany’s Deutsche Bank, feel that they will be severely disadvantaged in Asia and the US where competitors will face little or no curbs on how they can pay staff.
The moves could cause tension inside global banks, which have traditionally striven to keep pay similar across regions for executives of the same rank. Bankers said that diverging pay scales could cause particular confusion in those banks that run businesses with “co-heads” in New York and London.