Chief executives at European banks are getting a rough deal compared to their American counterparts, according to new research published in the Financial Times.
The research, by PriceWaterhouseCooper and commissioned by the FT, shows that on average, chief executives in major American banks earn more than twice than those in charge of European banks.
In 2014, the CEOs of the nine largest Europe based banks, which include the likes of HSBC, Barclays, and Credit Suisse, received an average compensation package of £4.8 million ($US7.3 million), including bonuses, basic pay, and long term incentives such as stock awards.
In comparison, the chief executives of the ‘big five’ banks in the USA — Goldman Sachs, JP Morgan, Morgan Stanley, Bank of America Merrill Lynch, and Citigroup — each received total pay averaging in excess of £10 million ($US15.2 million), according to the FT. Chief executives of big banks in America can earn monumental sums. According to various sources, thanks to huge paydays, both Goldman Sachs CEO Lloyd Blankfein and JP Morgan’s Jamie Dimon became billionaires in the summer.
What is also striking is that the gap between European and American CEOs is widening. Between 2010 and 2014, pay levels for American CEOs rose by around 15%, while European bosses are now earning about 6% less than they were in 2010.
The trend in falling pay for Europe’s banking bosses is largely thanks to the difficult general environment in banking, which includes tougher regulations, and generally poor economic growth, particularly in the Eurozone. This environment means that European banks are struggling to compete with their monolithic American rivals.
Dealogic, a website that tracks banking transactions and deals, shows that so far in 2015, the top five banks for investment banking revenues are American, and that their revenues account for 33.4% of all global investment banking.
Lack of stability
One reason for the discrepancies between European and American bank pay is the issue of management stability. Of the big five American banks, only Citi’s chief executive has changed since 2010. Michael Corbat was appointed by the bank in 2012. Contrast that to Europe where Barclays, Deutsche Bank, and Credit Suisse have all changed chief executive in the last 12 months. Since Lloyd Blankfein took charge at Goldman in 2006, Barclays has had four different chief executives.
Stability at American banks means that they have been able to push on with recapitalisation, and investing in new operations at a much faster rate than banks in Europe where leadership struggles have been frequen
Many within the industry are worried that differences in pay for CEOs is a reflection of a divergence between European and American banks.
Speaking to the Financial Times, Colm Kelleher, Morgan Stanley’s investment banking chief said “Having vibrant European investment banks is actually very important [economically]”. ” It’s not about the Americans versus Europe. It’s about the market place itself.”
PWC’s research also showed that whilst pay for American CEOs is on the rise, remuneration across the banking sector is falling. The average employee at an investment bank was paid £202,000 ($US306,000) last year, a drop of 19% since 2010, and 21% down since the pre-financial crisis heights of 2006.
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