Scandal-hit European banks to curb staff bonuses

Under pressure from politicians, regulators and shareholders, firms are shifting further away from the big upfront handouts of the boom years.

Some are expected to opt for a mixture of shares and risky assets – the kind which provoked the global financial crisis in 2008 but in some cases are now regaining value. Barclays already capped cash awards at £65,000 for 2011 payouts, and those types of limits will feature again at several firms, bankers and headhunters said.

In total, 2012 bonuses could be down by as much as 30 per cent on 2011 levels, senior managers believe, and the structure of awards is changing as regulators press the banks to clamp down on short term rewards.

“I’m sure there will be lots of different structures this year with different products, and attempts to cap the cash element. Either way bonuses will be down,” said Stephane Rambosson, managing partner of executive search firm Veni Partners. In the past year the industry has been caught up in a series of scandals ranging from mis-selling of financial products and a failure to prevent money laundering to the rigging of the Libor interest rate. Regulators have slapped heavy fines on a number of banks and disgruntled customers are following up with civil law suits. All this is affecting the size and shape of bonuses.

“It’s a mix of politicians and regulators wanting (pay) to be down and wanting to see an impact in the media, and also banks’ new business models, which will mean that people will get paid less in future,” Mr Rambosson said.

During the crisis, many assets such as sub-prime mortgages became essentially worthless as no one would buy them, fearing that the borrowers would default. But as the crisis eased, some have begun to regain value - albeit from near zero levels - and banks are now using these assets and other risky type of bonds to reward their staff.

Credit Suisse is examining yet more ways to include different types of products as part of its 2012 bonus round, according to two sources familiar with the matter. The bank declined to comment.