Its not even September and year end bonuses are already looking scant after stocks for leading banks such as Barclays Plc, Credit Suisse Group AG, Deutsche Bank AG and UBS Group AG have been taken to the woodshed in recent months.
The downturn in banking stocks, instigated by diving profit margins and profitability, have eliminated more than $2.5 billion from the value of deferred shares that were paid as bonuses in the past few years, according to a recent Bloomberg report.
The grim outlook for executive bonuses at banks follows after recent news of ambitious cost cutting measures at leading institutions in Europe, with the epicenter of this trend being London. Mainstays such as Deutsche Bank, Standard Chartered, and Barclays have collectively jettisoned thousands of workers, ranging from back office and IT personnel to scuttling FX and fixed income desks.
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The past few years have been amongst the hardest for banks in a decade, with billions of fines for misconduct and abuse via LIBOR and FX manipulation bogging down revenues. These issues have only metastasized after the Brexit fallout, which also led to a staunch decline in share prices at leading lenders.
The silver lining for European banking employees is rigid bonus caps, which are pegged to a maximum of double an employee’s fixed salary, ultimately leading many banks to increase salaries at the expense of incentive pay. According to data from the European Banking Authority, the average ratio of variable to fixed compensation for high earners plunged to 127% in 2014 from 317% a year earlier.
Its difficult to quantify the reductions of bonuses with over three remaining in the calendar year, however a number of London’s investment banks are poised to slash bonus pools by at least 25%, while other staff members could receive nothing.
According to Jon Terry, partner and pay specialist at PricewaterhouseCoopers, in a recent statement on the bonus scalings: “If the bank is suffering, the system is meant to work so individuals are aligned to the long-term interests of the bank, so suffer alongside it. This is an entirely intentional consequence of new regulations.”