Bank compensation

Let there be comp!

New rules in the UK shed some fresh light on senior-level compensation in the banking industry, but do little to improve regulatory oversight.
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Bonus season: an unseemly affair in 2012
<div style="text-align: left;"> Bonus season: an unseemly affair in 2012 </div>

Bonus season, once the highlight of the year, has become a time of fear, greed and politicians worked into a fever of righteous jealousy. But a rare ray of sunshine into the world of senior bank compensation shows how difficult and pointless further regulation of bank bonuses will be.

The UK’s FSA last year passed a regulation under which banks operating in the country had to reveal the remuneration compositions and totals that were paid to senior executives and other executives that fell under its remuneration code. These code staff are the level below the C-suite and board of directors, but comprise those whose activities have a material impact on the performance of the bank. The deadline for revealing this information was December 31, 2011, and most banks took advantage of the Christmas holiday period to reveal the information when they hoped no one was looking.

A week spent digging among disclosure documents reveals that major banks operating in the UK show a relatively wide range in terms of how much they pay their senior and code staff. Indeed, there is a 300% differential between some banks in how much they pay their code staff and senior management. Given that the numbers of staff involved are similar, market forces would appear to be at work in determining who gets paid what. It is not the classic stitch-up that bank bonuses are made out to be. The laws of supply and demand are at work.

The table below shows what was paid out in total comp. We have tried to make the numbers as consistent as possible, to make it a comparative exercise. However, every bank presents its numbers differently. Many banks do not break out the cash component of senior and code staff, for example, but offer a blended figure instead. Others don’t assign a value to the share awards, but just use the number of shares being issued.

  Total comp (£m) Senior staff Code staff Compensation (£m) Cash %
  Senior Code Senior Code
  J.P. Morgan 219.9 16 66 3.43 2.50 54% 56%
  Goldman Sachs 300.3 95 NA 3.16 NA 57% NA
  Citi 207.3 17 78 2.77 2.05 37% 37%
  Nomura 139.7 15 50 2.53 2.03 NA NA
  Morgan Stanley 122.0 15 59 2.47 1.44 62% 61%
  BoAML 217.9 20 74 3.20 2.07 NA NA
  Credit Suisse 217.3 22 51 2.14 3.34 62% 58%
  Barclays 504.0 231 NA 2.18 NA 29% NA
  Standard Chartered 156.7 73 33 1.27 1.94 25% 14%
  HSBC 300.3 58 222 1.70 0.91 60% 60%

 Source: J.P. Morgan, Goldman, Citi, Nomura, Morgan Stanley, BAML, Credit Suisse, Barclays, Standard Chartered, HSBC     USD/GBP : 1.57

But there are immediate points of interest. J.P. Morgan, for instance, has the highest average compensation for its senior management, while Morgan Stanley is near the bottom of the table for its code staff. Standard Chartered’s code staff were relatively well compensated in 2010, more so even than the senior management. Yet what also emerges is how many different ways the banks have for compensating their staff. Each one has a number of different share award schemes and the numbers below cannot hope to capture the nuances of each vesting and pay-out period, deferrals and clawbacks. This shows how difficult it is to systematise the regulation of compensation. If you cannot compare like for like, you cannot analyse. And if you cannot analyse, you cannot really expect to be able to legislate or regulate.

For bankers working in Asia, this exercise is instructive on two levels. Firstly, sources within the headhunting community all say that Asian comp still tends to be 30% to 50% lower from that in London (although this is made back in tax advantages). Moreover, the pay figures below relate to performance in 2010, and 2011 was much worse than 2010, so further downward adjustments would be needed for a full comparison. Again, headhunters in Asia say overall that bonus pools will be down around 25% this year over last year and within that there are huge differences within firms between star performers and the rest.

For those deemed to be stars, the money is still there even if the gap between what is paid in Hong Kong and London is narrowing. One headhunter said that while the head of Asian equities at a top-10 bank could expect to earn between $4 million and $6 million in Hong Kong, that figure could go up to $8 million in London. “There has always been a gap in pay and this year it is being maintained,” he said.

Before diving into the weeds of what each major bank has revealed, it is worth noting that while the debate on bankers pay is toxic in Europe and torrid in the US, it is rather placid in Asia. It is hard for bankers in Asia perhaps to fully grasp how hated bankers in the west now are. Asian bankers should have no plans to relocate unless they have a strange penchant for pitchforks.

This disclosure is required under the FSA’s Basel II Pillar 3 Regulatory regime, which is meant to assess how banks manage their market, liquidity and operational risks. That we now know that senior staff at Morgan Stanley are paid more than their friends at HSBC, but less than Goldman Sachs, makes precisely no difference at all to any kind of risk assessment. By demanding that banks reveal this kind of detail on what they pay their staff, the UK regulators will achieve nothing but a further demonisation of a sector that is crucial to the economy.

Where this exercise could however prove useful is for those fast-growing Asian banks that have ambitions to establish global investment banking operations. These numbers will give the likes of ICBC or CICC more data on the cost of setting up a full-service, top-10 international investment bank in Europe. It doesn’t come cheap.


J.P. Morgan
J.P. Morgan paid its senior management the highest average of any bank, although this figure has to be heavily skewed by the severance pay awarded to global co-head of investment banking Bill Winters when he left the bank. Even so, code staff also did well, earning just shy of £2.5 million on average with cash-to-pay ratios of 56%. This questions whether Jamie Dimon is really as careful with the bank’s money as he makes himself out to be. Perhaps he is only careful with pay for those not in the top ranks.

Click here to read J.P. Morgan's disclosure


Credit Suisse
The average compensation for code staff, excluding senior management, was £3.3 million, making Credit Suisse one of only two banks where code staff earned more than senior management (who took home on average £2.14 million). This is explained by the bank having most of its senior management abroad while those who are running the UK business lines are in London. The bank also had a relatively large deferral rates for its 2010 bonuses, whereof a proportion (41% of deferred comp for code staff is cash and 38% for senior staff), was granted under its Adjustable Performance Plan Awards (APPA) instrument (with a four-year deferral and clawback mechanism). The rest was granted in shares blocked over four years. For its 2011 bonuses the bank has introduced a new instrument that replaces APPA and will be used besides shares: by granting Partner Asset Facility 2 fixed-income notes, Credit Suisse’s bankers participate in a portfolio of the bank’s credit and derivative risk.

Click here to read Credit Suisse's disclosure


Citi paid its senior staff very much in line with the market at an average of £2.7 million, but with slightly more code staff (78) than its peer group, the average for these employees is less than the group. Citi did pay nearly £3 million in sign-on guarantees, but nothing in severance payments.

Click here to read Citi's disclosure


Morgan Stanley
Morgan Stanley has the lowest total comp figure of any of the group, a function of it having fewer code staff than any other bank apart from Nomura. Senior staff were paid in line with the market (£2.5 million), while other code staff earned significantly less (£1.4 million). It did have a relatively high cash payout ratio in 2010, at about 61%, but that is set to change in 2011 with the announcement that it is capping cash payouts at $125,000 for all employees. No guarantees and severance payments were made.

Click here to read Morgan Stanley's disclosure


Nomura stands out for paying more in sign-on awards during the period than any other bank in the group, with a total of $42.9 million paid to 10 code employees. This is understandable as it was in a building mode following its acquisition of Lehman’s Asian and European businesses. Overall, senior staff were paid an average of £2.5 million and other code staff made just over £2 million on average.

Click here to read Nomura's disclosure


Bank of America Merrill Lynch
BoA Merrill’s senior UK staff, somewhat surprisingly, came towards the top end of pay, earning on average just under £3.2 million in 2010. However, the differential between senior staff and code staff was one of the greatest, being around £1.1 million. The bank was also in growth mode, paying a £900,000 signing bonus to (presumably) one senior manager and a further £21.2 million to secure the services of other code staff.

Click here to read BoAML's disclosure


UBS took the decision in early 2011 that the disclosure requirements only related to one operating entity called UBS Limited and as such it has revealed the comp awarded to the board of directors of that entity. Moreover, its figures only show “the time-apportioned value of director’s total remuneration awarded by UBS”. Thus 17 directors shared £1.4 million for their time running this small operating entity.

Click here to read UBS's disclosure


Goldman’s numbers are harder to divine than others as they have not placed a dollar value of the stock awards, preferring to just announce the number of restricted stock units (RSUs) awarded. This does obviously make sense given that the share price will vary during the three-year vesting period and five-year pay-out period. Still, by assigning a $100 value to the RSUs, (which is the share price in mid-January), Goldman tops the table for the size of its comp. It paid $68 million in salaries, $201.5 million in cash bonuses and $202 million in RSUs. Combined, this is $471.5 million shared between 95 code employees — or just over £300 million. The bank also doesn’t break out how many of those 95 are senior and who are code. Even so, as a combined group, they average a top-three £3.16 million in average total pay for 2010.

Click here to read Goldman's disclosure




The UK bank paid a total of £554 million in comp to its 231 code staff. The bank doesn’t break out where these people are and, given that £406 million of the total is paid to Barclays Capital senior staff, it is fair to assume that many of them are in the US. Even so, senior management were paid £60 million while other code staff earned £444 million between them for an average figure of £2.18 million.

Click here to read Barclays' disclosure


With a combined 280 senior and code staff, HSBC has the most number of employees captured in this exercise. A large proportion of those will be in Asia. However, it pays its senior executives £1.7 million on average and it pays its code staff an average of £900,000, far lower than other banks in this exercise, which reflects the lower packages given to executives in Asia and other emerging markets. The old adage that HSBC has deep pockets but short arms seems to be affirmed.

Click here to read HSBC's disclosure


Standard Chartered
Standard Chartered’s metrics stand out in a number of ways. It is rare in having more than twice as many senior staff (73) as other code staff (33). However, it paid its code staff on average £667,000 more than it paid its senior staff, who earned on average £1.27 million in 2010. Moreover, it pays by far the most amount of any bank in stock as opposed to cash, with 25% of total senior staff comp going out as cash and only 14% of other code staff being paid in cash. It also revealed that it paid one senior manager a sign-on award of $427,000 and one other code staff a sign-on of $4.55 million.



Apart from Credit Suisse with its full disclosure and UBS with its partial disclosure, no other European banks have disclosed these numbers. They all attest that they come under the EU’s own remuneration disclosure regime, which does not require the same kind of data dump to which the other banks operating in the UK are subject. For instance, Deutsche Bank spokesman Christoph Blumenthal says: “As a German headquartered company, Deutsche Bank is under legislation of the German banking supervisory authority BAFin. In this context, Deutsche Bank publishes a comprehensive remuneration report on a yearly, but not on a regional basis. As a 100% branch of Deutsche Bank, our UK operations are not required to disclose separately the remuneration of the UK staff according to FSA regulations.”

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