* Top banks paid up to 5.4 times fixed salary in bonuses
* EU to cap bonus at maximum two times fixed salary
* Top Goldman staff paid $4.67 million each for 2012
* Some banks seek "creative solutions"
By Steve Slater
LONDON, Jan 7 Investment bankers working in
London for many top U.S. and European groups face a major
overhaul of their pay structure, as their recent bonuses have
far exceeded new EU rules which will curb payouts to be made
this time next year.
JPMorgan, Goldman Sachs, Bank of America
, Barclays and Credit Suisse paid
bonuses to leading UK staff which ranged from 3.3 to 5.4 times
their fixed pay for 2012, according to data disclosed by the
banks and Reuters calculations.
Big changes will therefore have to be made to meet the
European Union rules which cap bonuses at the same level as
fixed pay, or double if the bank's shareholders approve.
Bankers' bonuses remain a hot topic among politicians and
the public. Many blame their high levels for encouraging
reckless risk-taking that led to the 2008/09 financial crisis
and a series of mis-selling and misconduct scandals.
Banks usually pay staff bonuses in January or February based
on their performance the previous year. So while the EU curbs
came into force this month, they will be applied first to
bonuses for 2014 to be handed out early next year.
Major banks continued to reward their top risk-taking staff
heavily on performance in bonuses for 2012, their regulatory
disclosures have showed in the last few weeks.
Goldman Sachs paid its top 115 UK staff an average of $4.67
million each for 2012, an increase of three-quarters from the
average for 2011 and the highest of the major banks. The bank's
earnings and revenues jumped in 2012 from 2011.
About $350 million of Goldman's total bill for these bankers
was paid in bonuses, or 5.2 times what it gave in fixed pay -
jumping from a ratio of 2.2 times in 2011 - according to Reuters
Banks are expected to increase fixed pay and reduce bonuses
to meet the new rules, although Barclays, HSBC
and others are coming up with innovative ways to cope.
Barclays plans to give its senior bankers additional monthly
payments. The new "role-based pay" element - on top of base
salary and variable bonuses - will be for employees occupying
specific risk-taking roles.
Most of this will be in cash, although top-up payments to
members of its executive committee may be in shares, following
discussions with shareholders, a person familiar with the matter
HSBC plans to hand new share awards to about 1,000 of its
top staff, an industry source said, adding that the plan would
have characteristics of variable pay but qualify as fixed pay.
"A LOT OF CREATIVITY"
JPMorgan and others are considering similar shifts to
Barclays and HSBC to keep some flexibility on pay and meet the
bonus rules, industry sources have said.
"It appears there's a lot of creativity going on," said
Peter Hahn from London's Cass Business School.
About 10,000 staff are expected to be covered by the rules.
Bankers earning more than 500,000 euros a year will be affected,
although the EU banking watchdog watered down requirements last
month and said some staff earning that amount could be excluded.
A number of other banks also bust the new rules for 2012,
according to data released for their UK "code staff", which
covers all people in significant risk-taking positions.
JPMorgan paid 126 code staff an average of 2.09 million
pounds ($3.4 million), and variable pay was 5.4 times fixed pay.
Bank of America paid its code staff an average of 1.5 million
pounds, with variable pay 5.4 times fixed pay. Its senior
managers received 12 times more in variable pay than salary.
The British government is fighting the rule in Europe's
highest court and many banks in London have opposed the cap,
saying it will force up fixed salaries, provide less scope to
claw back pay and encourage staff to move to banks in the United
States or Asia which are not constrained.
Among other leading banks, top UK staff at Credit Suisse
earned an average of $2.28 million in 2012, up 8 percent from
2011, and bonuses were 3.3 times fixed pay, according to data
released just before Christmas.
The figure for British-based Nomura bankers was an
average of $2.37 million each in the year to March 2013, and
bonuses amounted to 3.1 times fixed pay.
Barclays had previously disclosed it paid its 393 code staff
an average of 1.37 million pounds each in 2012, and variable pay
was 4.3 times fixed pay, while HSBC paid its code staff an
average of $1.68 million each in 2012, and variable pay was 2.7
times fixed pay.
Hahn at Cass said it was "disappointing" that overall pay
levels were not coming down, as returns for shareholders at many
banks are still lagging the cost of equity.
"This is an industry that still needs to deal with cost
cutting...it's still an industry that appears to be paying as if
it's a high return business, and it isn't," Hahn said.
Banks either declined to comment, could not immediately be
reached, or said they were considering their options in regard
to future pay structures.
The new rules cover pay for 2014, but will not affect
bonuses for 2013 that will be handed out in the next two months.
Bonus details will start coming out from U.S. banks reporting
results from next week, and are expected to be flat to slightly
higher across the industry.
Just over 3,500 bankers in Europe earned 1 million euros or
more last year, and more than three-quarters of those were based
in Britain, partly reflecting London's dominance as a financial
hub and the European hub for global banks.
PAY FOR UK BANK STAFF
BANK NO. OF UK AVG CODE VARIABLE
CODE STAFF STAFF PAY VS FIXED
Goldman Sachs* 115 2.87 5.2x
JPMorgan 126 2.09 5.4x
Citigroup 190 1.53 2.0x
Bank of America 121 1.5 5.4x
Credit Suisse 165 1.4 3.3x
Nomura** 94 1.46 3.1x
Barclays 393 1.37 4.3x
StanChart 113 1.23 2.8x
Morgan Stanley 113 1.07 2.2x
HSBC 314 1.04 2.7x
UBS 188 0.8 1.9x
RBS 368 0.7 1.3x