For The First Time In Decades, Investment Bankers See Pay Shrink

In what experts are now calling the beginning of the largest compensation adjustment at financial institutions in a generation, average pay per head in a sample of nine European and U.S. investment banks dropped from 9.5 times the private sector average in 2006 to 5.8 times last year, according to new research.

News of the drop in salaries and bonuses at banks comes as several financial institutions struggle to recover from a public battering of their image following a series of scandals ranging from money laundering (HSBC), to insider trading (UBS) and the Libor debacle (Barclays). Public criticism of banks’ compensation practices has been rife ever since the start of the Great Recession, although no bank has yet been held accountable for the global financial crisis.

Still, regulators have been trying to curb what they, the public, and shareholders, view as compensation practices that are out of line with a bank’s performance. Some experts now believe that the recent drop in bonuses and salaries across the banking industry finally marks the start of a real adjustment in the way banks are handling compensation packages.

“Bank pay has fallen further and faster than many people think, and 2012 has seen a material reallocation of returns from employees to shareholders,” Tom Gosling, a partner at PwC's rewards practice, said of the research that was carried out by PwC for the Financial Times.

EU member states recently supported a legislative plan to limit bonuses for the most senior staff and top traders to the same size as base salaries, or two times salary with approval from investors. While U.S. financial institutions have been less marked in their bid to reduce bonuses of bankers that are disproportionate to their bank’s performance compared to their European counterparts, bonuses across the industry did slip 51 percent last year compared to 2010, eFinancialCareers recently noted.

In particular, the sell-side has been leading the downhill race in compensation in the U.S. with a 10 percent decline in salary in 2012 compared to the previous year and a 24 percent drop in average earnings, according to eFinancialCareers’ survey of 1,431 finance professionals.

Junior employees who had been at firms less than two years saw the biggest drop in their bonuses drop, to 24 percent of their pay, compared to 43 percent in 2011.

Melanie Rodier has worked as a print and broadcast journalist for over 10 years, covering business and finance, general news, and film trade news. Prior to joining Wall Street & Technology in April 2007, Melanie lived in Paris, where she worked for the International Herald ... View Full Bio