Despite lackluster performance across the sector, bank chiefs’ 2010 pay increased by an average of 36% over 2009, according to data compiled by the Financial Times.
There are a couple of good reasons why salaries jumped. CNBC among others have pointed out that without high pay, banks might experience a talent exodus. (They might have been right, considering that London started demanding 50% of bankers’ bonus pay, prompting a disastrous hedge fund exodus from the city.) And some banks increased regular salaries and de-emphasised bonuses to discourage to the risky behaviour that contributed to the financial crisis.
But now those salary hikes might are being cited as part of the reason that job losses are about to hit the sector. (The main reason of course, is the aforementioned lackluster performance.)
The salary increases have left the banks with elevated fixed costs at a time of stagnant revenues. The situation, JPMorgan analyst Kian Abouhossein pointed out in a report Tuesday, is a formula for “material staff cuts.”
The cuts could be most severe at Credit Suisse and UBS, which appear to have the highest fixed compensation costs.
Of course the simple answer would seem to be, cut salaries. But banks have to keep their salaries competitive across the industry. So it sounds like instead of cutting salaries, they’re cutting the employees who they can’t afford to pay so much.
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