Intense competition in recruitment by US banks and a slew of new regulations is preventing European banks from being able to hire the right people, said media reports quoting sources and experts from the industry.
“It is a vicious circle, isn’t it?” said a senior executive at a European bank said in a television industry while not wanting to be identified. “You want to hire the right talent because you can see the business is suffering, but you don’t get approvals for the headcount and when you finally do, you aren’t able to match the salaries,” the sources reportedly said.
Compared to other industries, the payment in the banking industry is generally higher. A base salary of anything between $50,000 and $60,000 is given as a starting salary to a junior-level analyst in a trading role a bank in Europe. And in addition, such employees would also get allowances and a bonus – sometimes even in the form of company stocks.
This is the major difference between the payment structure of US and European banks as those based in America tend to concentrate in cash bonuses only which extends the compensation of a junior level analyst to anything between $80,000 and $100,000 a year. This difference become much wider as one goes up the levels.
“You want to hire the right talent because you can see the business is suffering, but you don’t get approvals for the headcount and when you finally do, you aren’t able to match the salaries,” a senior executive at a European bank reportedly told CNBC.
These huge figures often surprise – and sometimes shock, people outside of the banking industry – more so because of the current slowdown and uncertainty of the of the global economy and even as the aftershocks of the 2007-08 financial crisis still lingers on in some cases. While new regulations have been enacted in Europe to put a cap on salaries, it has not prevented banks from giving out big payouts.
“I think we are seeing some incentive systems in some corners of the financial sector, yet again, moving in the direction that I find not exactly aligned with the sense of purpose that I hope banks actually have,” Christine Lagarde, the managing director of International Monetary Fund, said at a panel discussion at the World Economic Forum in Davos last month. The financial sector should also function with a sense of purpose, she advised and not “single-mindedly” go for profits only.
In early 2014, European banks were mandated by a regulation to put a cap in the bonus paid to its executives which includes bonuses that are paid by banks to their senior managers and other “material risk takers”, the regulation capped the bonus at a maximum of 100 per cent of the fixed salary of the executives in general which can be extended to 200 per cent fixed pay of passed by shareholders. While this has satiated to an extent the calls for controlling the exorbitant salaries in the banking sector, the banks on the other hand have raised the basic salaries so that the losses because of the regulation could be compensated.
“One consequence of the regulation of remuneration, particularly the introduction in the EU of the bonus cap, has been an increase in fixed remuneration as a proportion of total remuneration,” a Bank of England report published in December 2015 found.
This cap on bonuses has however impacted the hiring strategies and numbers in European banks. This is because large American banks typically paid higher bonuses and fixed salaries and therefore European banks found it tough to get the right candidate – especially in senior positions.
(Adapted from CNBC.com)