FT: Global Investment Banks Cutting Pay Despite Profit Increase

Thursday, 05 Dec 2013 07:32 AM

By Dan Weil

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An increase in profits isn't enough to keep global investment banks from cutting their workers' pay for the third year in a row.

The banks are now more concerned with shareholder returns than rewarding their employees, according to the Financial Times.

Nine of the biggest investment banks in the United States and Europe are on pace to cut employee compensation by a median of 5 percent this year, according to an FT analysis of their earnings reports for the first three quarters.

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Meanwhile, profit are on track to gain 10 percent.

"Banks are continuing the trend of the last couple of years of realigning returns from employees to shareholders," Tom Gosling, head of professional services firm PwC's U.K. reward practice, told the Financial Times.

"They need to do this, as most banks are still delivering single-digit return on equity, . . . and the industry continues to face significant regulatory challenges."

More stringent capital requirements, increases in electronic and exchange-based trading and a tepid global economy have hurt investment banking performance in recent years, the Financial Times notes.

Interestingly enough, the pay cuts are smaller in the United States than in Europe.

To be sure, a forecast from compensation consulting firm Johnson Associates projects that U.S. bankers and hedge fund employees will see their bonuses rise about 10 percent on average this year, according to the International Business Times.

"Hedge funds' bonus pools were fueled in 2013 by the combination of increased performance fees and additional management fees generated on an increase in investor capital allocations," according to the 2014 Glocap Hedge Fund Compensation report obtained by International Business Times.

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