European bank bonus cuts mask basic pay hikes

Thu Feb 23, 2012 11:12am EST
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LONDON (Reuters) - European banks could face more pressure from regulators and politicians worried that big cuts in bonuses have barely dented a high-pay culture sustained by massive hikes in base salaries.

A string of banks have grabbed headlines with big reductions in handouts to staff for 2011. Royal Bank of Scotland (RBS.L: Quote), 82 percent state-owned after a government bailout, is to cut its bonus payouts for 2011 by 58 percent.

French bank Credit Agricole (CAGR.PA: Quote) will lower trader bonuses by 20 percent and larger rivals BNP Paribas (BNPP.PA: Quote) and Societe Generale (SOGN.PA: Quote) have pledged cuts of 50 percent.

It said although RBS made a loss in 2011, this reflected the business environment and costs from its legacy business.

UKFI said RBS management had made progress in improving performance and had "exercised reasonable judgment" in its approach to bonuses.

But critics say slicing away chunks of bonus pots by banks masks concerns that base salaries and total pay remain too high.

Some investment banks still hand over nearly half their revenues to staff. Many firms have raised basic pay while cutting annual bonus payments since the crisis.

At RBS's investment bank arm, the compensation to revenue ratio for 2011 rose to 41 percent from 34 percent in 2010, based on staff costs as a percentage of total income.

The bank's average total pay, made up of total salary plus bonus, for its investment bank in 2011 was down 26 percent, a much smaller drop than the cut in bonuses alone.   Continued...

A logo of an Royal Bank of Scotland (RBS) is seen at a branch in London February 23, 2012.   REUTERS/Stefan Wermuth