More proof that bankers will always find a way to pay themselves more

March 6, 2014
March 6, 2014

Just a few weeks ago, Goldman Sachs unveiled a new plan to pay its traders in Britain and Europe, seemingly in response to new European Union rules meant to put caps on the large bonuses the financial industry is famous for.

As it turns out, a number of other a number of banks are following suit.

Faced with new regulation intended to dissuade the sort of risk-taking that helped set off the global financial crisis, many big banks are tweaking their approach compensation. According to the new European Union rules, which took effect this year, banks are restricted from paying bonuses that are double the salary of employees who are involved in putting the firm’s capital at risk. The intent for the regulatory agency of the EU, the European Banking Authority, is to discourage key traders or risk control officers (dubbed “code staff”) from taking outsized risks in order to generate rich bonuses for themselves. Typically, bonuses are the biggest chunk of traders’ pay and can be many multiples of their base salary.

But apparently you can’t hold a smart trader down.

Back in late January, Goldman informed employees that it would be instituting so-called “role-based pay.” This form of compensation stems, in part, from the caps that the EU placed on bonuses. Such role-based pay would  would be regularly paid out in monthly increments and can be clawed back at the discretion of the firm. Effectively, such payments will drive up base salaries for traders.

Other institutions now seem to be following Goldman’s lead by implementing new kinds of payments, sources familiar with bank pay plans tell Quartz. For instance:

  • HSBC is considering paying its traders an additional quarterly allowance on top of their salaries, according to a source familiar with the bank’s plans. HSBC is expected to be announcing its pay to its employees in the coming weeks, sources said.
  • Credit Suisse and Société Générale are said to be considering similar regular pay installments, people familiar  said.
  • Reports indicate that Barclays also has instituted a monthly allowance. Sources tell Quartz that the award will be handed out at the beginning of the month and can be cashed out at the end of the month.
  • Bank of America also is considering making a twice-a-year payment to traders who would be affected by the new European rules, sources say.
  • Morgan Stanley may also hand its European traders a year-end lump sum allowance, separate from bonuses, sources say.

Allowances and role-based pay aren’t the only tweaks to compensation banks have made. Some firms have ratcheted up the base salaries of traders. For example, Deutsche Bank has doubled the base salaries of its senior traders from $400,000 to $800,000 in some cases. Barclays has boosted senior trader base pay by 50% to $600,000. Less senior traders at Barclays may see an even higher bump in salaries of nearly 200% to $350,000.

The banks either declined to comment or didn’t return calls to comment on their pay structure.

On the face of it, these new bank pay structures may serve to accomplish the goal of cutting down on risk-taking at large banks. On the other hand, it is still early days.  (Interactions between compensation schemes and incentives can be devilishly complicated. It can take a while for problems to become glaring.) What does appear clear is that traders will still be able to fetch relatively rich pay packages. This is banking, after all.

“Finance people are in finance for the love of money, not for the love of risk-taking,” said Michael Karp co-founder of recruiting firm Options Group. “Regulators don’t get that, but at least those that run banks understand that and have acted quickly to find a solution to appease both regulators and employees.”

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