GOLDMAN Sachs cut the salaries of a large number of its London-based bankers yesterday, ending a two-year period of higher pay begun in 2009 in response to tough new bonus rules.
Goldman invoked a clause in the bankers’ contracts to cut their base salaries after two years at a higher rate that was seen as a way to compensate them for cuts to their year-end bonuses in the wake of the financial crisis.
The salary changes follow a 39 per cent fall in Goldman’s revenues in the second quarter of this year, after which it announced 1,000 job cuts and said its first-half compensation pool would be nine per cent lower than a year ago.
Banks came under huge pressure to cut bonuses in 2009 and a revised version of the remuneration code in 2010 put an end to all-cash bonuses.
Many banks, including Barclays, Citigroup and Goldman Sachs, responded by raising base salaries by 20-50 per cent and in some cases doubling pay in lieu of upfront bonuses.
But the strategy has come under strain this year as profits and trading revenues have slumped, leaving many looking for ways to reduce what has become a high fixed cost base.
Jon Terry, remuneration partner at PwC, said the changes to UK bonus rules had undoubtedly skewed pay scales at banks. “The remuneration code no doubt was a major factor in the increases in salaries, there is no question of that,” he told City A.M.
“That, as banks go through difficult times, has resulted in less flexibility in managing fixed staff costs.”
FAST FACTS | GOLDMAN SACHS
● Employs about 6,000 staff in its UK and European business and 35,700 globally
● Will cut 1,000 jobs by the end of the financial year after sharp falls in its trading revenues
● Set aside $8.4bn for compensation in first half