It is no secret to those in the industry: investment banking headcounts are on the decline. Most institutions around the world are scaling back their staff in the face of higher regulatory and compliance costs and improved technology that allows firms to do more with fewer high cost people. That said, those that remain in the industry are seeing an interesting trend starting to develop. Increasingly, investment banks are finding that they need to increase compensation for their remaining staff in order to retain their top talent. While perhaps not as welcome as more stable careers, the additional compensation certainly takes a bite out of a highly volatile job scene.
Switzerland’s Biggest Bank to Increase Salaries an Average of 9 Percent
One case in point is UBS, who as recently as last year announced that 10,000 jobs were being shelved as cost cutting measures, critical to the ongoing sustainment of their investment banking operation. In terms of real reductions in staffing, in the twelve months ending in March, UBS saw its investment banking work force decline from 14,435 to 12,544. Despite the job cuts, the firm is desperately increasing salaries this year by a whopping 9 percent on average. Some of the highest performers may see an increase in excess of 25 percent this year. Interestingly, the firm seems to be responding to competition from other players who are offering their top talent higher compensation in order to entice them across the street. “UBS had frozen salaries for years, and it’s trying to bring pay in line with the industry – particularly U.S. firms,” Lee Thacker, of executive search firm Silvermine Partners LLP, told Bloomberg.
Bonus Pools Continue to Struggle
Despite the big increases coming to UBS, bonuses at the bank haven’t been as strong over recent years. In 2012, the Swiss institution slashed its bonus pool by 7 percent, with some bonuses being awarded as five year bonds rather than cash. While investors may have applauded the move which forced traders and managers to have some skin in the game, employees were likely unimpressed. The salary increases may be one compensation tool being used to offset the distaste for the bonus restructurings.
Regulatory Reforms Targeting Bonuses May Also Factor into Decision
Over the past few years, regulatory reforms targeting bank bonuses have forced institutions to rethink compensation packages in order to be in compliance with regulations and reduce taxes and penalties. In particular, a full cap on bonuses was established by the European Union in February, outlawing bonuses that are more than twice a banker’s annual base salary. With many of the Swiss bank’s key employees based in London, the bank may have needed to move on base salaries in order to keep their total compensation competitive with peer institutions in markets that are relatively friendlier to banking compensation, such as the United States.
Whether this move by UBS is a sign of salary increases coming across the board for investment bankers, or is simply a ploy to avoid European Union regulations remains to be seen. It does mark an important turning point for the industry. Are we heading back to another boom in terms of investment banking pay? It may be several months before we can tell if the trend is establishing itself, but surely most industry employees will also be keeping a close eye on further developments.