- A junior-level analyst in a trading role at a European bank can start at anything between $50,000 to $60,000 for a base salary.
- European banks are suffering from years of weak profits, massive fines, ultra-low monetary policy and uncertainty surrounding the U.K.'s exit from the European Union.
European banks are finding it hard to recruit the right people due to new regulations and intense competition from some of their U.S. peers, industry insiders have told CNBC.
"It is a vicious circle, isn't it?" a senior executive at a European bank told CNBC who preferred to remain anonymous due to the sensitive nature of the topic.
"You want to hire the right talent because you can see the business is suffering, but you don't get approvals for the headcount and when you finally do, you aren't able to match the salaries," they told CNBC.
Pay in the banking sector is generally higher compared to other industries. A junior-level analyst in a trading role at a European bank can start at anything between $50,000 to $60,000 for a base salary. On top of this they would receive allowances and a bonus, which can sometimes be given in the form of company shares.
This is where U.S. banks differ as they tend to stick to cash bonuses, taking the overall compensation of a junior analyst to somewhere between $80,000 to $100,000. This gap starts to widen more as employees go up the ladder.
People outside the industry have often found these figures to be shocking, especially as the world economy is undergoing uncertainty and still reeling from the effects of the financial crisis of 2008. Banks are often criticized for big payouts and new rules on salary caps in Europe hasn't stopped that.
"I think we are seeing some incentive systems in some corners of the financial sector, yet again, moving in the direction that I find not exactly aligned with the sense of purpose that I hope banks actually have," Christine Lagarde, the managing director of International Monetary Fund, said at a CNBC-moderated panel at the World Economic Forum in Davos last month. She also advised the financial sector to work with a sense of purpose and not "single-mindedly" for the pursuit of profits.
European banks have to adhere to an EU-wide bonus cap that was put in practice in early 2014. The regulation limits bonuses paid to senior managers and other "material risk takers" to no more than 100 percent of their fixed pay generally, or 200 percent of their fixed pay with shareholders' approval.
While this limit may have calmed an uproar over the large sums of money that executives take home, it has also led to banks increasing basic salaries as a way to compensate for the bonus restrictions.
"One consequence of the regulation of remuneration, particularly the introduction in the EU of the bonus cap, has been an increase in fixed remuneration as a proportion of total remuneration," a Bank of England report published in December 2015 found.
In 2015, the Bank of England and the Prudential Regulation Authority, also made changes around bonus buyouts, where banks compensate new employees for any remuneration foregone when they change jobs. As part of the new rules, banks can claw back some or all of the bonus already paid to an employee for up to seven years, if the employee is found to have committed wrongdoing in their previous job.
The EU-wide bonus cap saw an impact not just on employee morale but also on hiring. Big European banks found it difficult to hire executives, especially when compared to U.S. banks where bonuses and fixed salaries can be higher.
European banks are suffering from years of weak profits, massive fines, ultra-low monetary policy and uncertainty surrounding the U.K.'s exit from the European Union. The U.S. banks, on the other hand, especially the big ones like J.P. Morgan and Citi have very strong retail operations that have kept these banks resilient in the face of economic headwinds. This makes them better paymasters and a more conducive place to work.
One recruitment consultant told CNBC, on condition of anonymity due to their relationship with large banks, that lenders like Goldman Sachs and J.P. Morgan see strong bonus payouts for front of office roles executives — such as in the trading room — and were up to 30 to 40 percent better when compared to European banks such as Barclays, Deutsche Bank and UBS. Spokespersons for Goldman Sachs, Barclays and Deutsche Bank were not immediately available for comment when contacted by CNBC. Meanwhile, J.P. Morgan and UBS declined to comment.
"There is no comparison. A vice-president or a director level executive in a trading function at a U.S. bank will easily see a 100 percent cash bonus component as compared to a European bank where these are generally given as deferred, or in stocks," the consultant said.
Banks pay out bonuses in various ways. While some banks, especially the U.S. banks, pay out a 100 percent cash bonus, several European banks pay out bonuses as a mix of cash and stocks. The cash component of the bonus, in many cases, is deferred and is paid out over a longer period — an incentive for the employee to stay with the company and a way for the institution to deal with costs.
"I think that was the case three or four years ago, but we started to see the stronger European banks catch up last year to pay market levels," Joseph Leung, the founder and managing partner at recruitment firm Aubreck Leung, told CNBC last week.
"Keep in mind many of them exited unprofitable businesses a few years ago and redistributed their capital to performing areas enabling them to pay their good people," Leung added.
He, however, warned that this could change in 2019 since none of the European banks have announced their compensations yet.
Amid all the uncertainty currently surrounding the banking sector, it is the new talent that is bearing the brunt. Young people joining banks often find themselves witnessing a massive income divide when compared with their senior peers who have climbed up the ladder pre-crisis and bonus-cap era.
While some employees at European banks may feel disappointed with low pay and non-existent bonuses, others may feel comfortable with a steady flow of income — that is comparatively higher than what several other sectors pay.
"Banks have been paying like this for years so don't think its affected morale in any way," Leung said.
"Because of the bonus cap most people have seen their fixed compensation gone up — whether it's in a higher basic salary or in allowances ... So in a warped way some are actually getting more cash than they did before because they are getting less deferred stock."