Industry insiders say that UK bankers are looking at a pay cut of 20-50 per cent – in addition to thousands in job cuts – contrary to the public view that the City has continued to ramp up rewards through the crisis.
Angela Knight of the British Bankers’ Association (BBA) said yesterday that “the public commentary has not kept up” with changes on the ground. She slammed politicians and media for “sweeping the facts to one side and distorting the debate”, adding that on the pay debate: “We need to end the personal pillorying.”
Barclays will be the next bank to brave the storm on Friday when it unveils full-year results, which are expected to show a pre-tax profit of £6.2bn. Pay cuts of nearly 30 per cent are said to be in the pipeline for its investment bankers.
With revenues shrinking due to new regulations and market turmoil, banks are being forced to cut pay and jobs to stay out of the red.
Headhunters say that the cuts are so widespread that talented City workers are considering leaving bulge bracket firms in droves.
“We are seeing more candidates interested in external opportunities than ever before,” says Kumaran Surenthirathas, front office chief for recruiter Eximius Group.
“Bonuses and overall compensation announced to date are 25-35 per cent down on this time last year, with perhaps worse still to come. This coupled with the recent wholesale redundancies has left morale at an all time low,” he added. Bonuses make up the majority of the pay packet for many bankers.
Tim Hedger of bank recruiter Marks Sattin says that banks had been expected to put up base salaries in response to strict regulation of bonuses but because of the difficult environment, that has not happened.
“The expectation was that base pay would rise but it’s been flat. Bonuses have been hit. Expect 30-50 per cent cuts,” he says, saying that the crunch has badly “affected morale”.
The cuts are likely to fall very unevenly, however: most bankers will see their bonuses slashed drastically while a select group of the most talented staff will see a far smaller change. “The top performers will be looked after,” says Hedger.
Last year, banks announced over 120,000 of job cuts globally, a number that has only increased since then.
The mass lay-offs and bonus cuts will also deliver a big hit to public finances as tax revenues generated by the City drop.
By way of example, Baker Tilly’s David Heaton says a third of the bonus awarded to RBS chief executive Stephen Hester would have gone to the taxman if he had not waived it.
“The exchequer stands to lose around £360,000 in 2014 [from the row],” says Heaton.