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Investment bankers' pay gets closer to everyone else's

PWC research finds pay gap narrowing for the first time in a generation.

Average pay per head in investment banking sector has fallen from 9.5 times the private sector average in 2006 to 5.8 times in 2012, according to a study compiled by PricewaterhouseCoopers (PwC) for the Financial Times (FT).

The study, which compares a sample of nine investment banks with global companies in the FTSE 100 index, found that investment bankers still get more pay than other professionals, including doctors and engineers. It also reveals that investment bankers continue to earn £212,000 on average.

The pay premium that was built up amid the deregulation wave since the 1980s and the debt-fuelled bonanza in the past decade is becoming weaker six years after the financial crisis, find the research.

“Bank pay has fallen further and faster than many people think, and 2012 has seen a material reallocation of returns from employees to shareholders,” said Tom Gosling, a partner at PwC’s rewards practice.

Median profits at investment banks grew by 28 per cent in 2012, excluding the quirky effect of the valuation of their own debt. But pay fell 6 per cent. European banks pay cuts in 2012 despite strong profits shows how the changes go beyond cyclical adjustments.

“There have always been wild swings, but what is different now is that pay has changed structurally,” said Mark Quinn, a partner at Mercer’s rewards practice told FT.

Bankers, however, warn of a growing rift between the US and Europe, where regulatory pressure and slower revenue growth is pushing down pay much more markedly.

“There is somewhat less pressure at US banks. They still pay more overall and they pay a much higher cash bonus,” said Stephane Rambosson, a partner at executive research firm Veni Partners.

The research comes after the European Union members have unsettled bankers in London with a legislative plan to cap bonuses for the most senior staff and star traders to the same size as salaries.

The research comes after the UK failed to ward off new European Union rules limiting bankers’ bonuses earlier this month.

Photo: Dan Kitwood/Getty Images
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Conservative disunity is not all good news for Labour

The Tory leadership election could squeeze Labour out of the conversation, just like Blair and Brown did to the Tories.

The first test of opposition politics is relevance. Other key yardsticks - political plausibility, economic credibility, setting the agenda and developing a governing vision - all matter greatly. But making yourself a central part of the relentless cycle of daily politics, the terms of which are generally set by the governing party, is the first hurdle. It matters not whether you sign up to new politics or old: be relevant or wither. 

The issue of relevance is becoming a pressing issue for Labour. Take George Osborne’s favoured issue of the so-called national living wage.  Leave to one side the rights, wrongs and nuances of the policy and just consider the basic political dynamic it creates.  Osborne has, quite deliberately, set up a rolling five year argument over a steadily rising wage floor. On one side, is the Chancellor arguing that his policy is the right thing for Britain’s ranks of low paid workers. Pitted against him are ranks of chief executives of low-paying big business. With each impending hike they will holler at Osborne to go no further and the media will happily amplify the row. In response the Chancellor will quietly smile.

Sure, on occasions this will be uncomfortable stance for Mr Osborne (and if the economy takes a downward turn then his pledge will become incredible; there are always big risks with bold strokes).  Yet the dominant argument between the Conservatives and big business leaves Labour largely voiceless on an issue which for generations it has viewed as its own.

We may well see a similar dynamic in relation to the new national infrastructure commission – another idea that Osborne has plundered form Labour’s 2015 manifesto. It’s far too early to say what will come of its work looking at proposals for major new transport and energy projects (though those asserting it will just be a talking shop would do well not to under-estimate Andrew Adonis, its first Chair). But there is one thing we can already be confident about: the waves of argument it will generate between Osborne’s activist commissioners and various voices of conservatism. Every big infrastructure proposal will have noisy opponents, many residing on the right of British politics. On the issue of the future of the nation’s infrastructure – another touchstone theme for Labour – the opposition may struggle to get heard amid the din.

Or take the different and, for the government, highly exposing issue of cuts to tax credits. Here the emerging shape of the debate is between Osborne on one side and the Sun, Boris Johnson, various independent minded Conservative voices and economic think-tanks on the other. Labour will, of course, repeatedly and passionately condemn these cuts. But so have plenty of others and, for now at least, they are more colourful or credible (or both).  

The risk for the opposition is that a new rhythm of politics is established. Where the ideological undercurrent of the government steers it too far right, other voices not least those within the Conservative family - moderates and free-spirits emboldened by Labour’s current weakness; those with an eye on the forthcoming Tory leadership contest – get reported.  Where Osborne consciously decides to tack to the centre, the resulting rows will be between him and the generally Conservative supporting interests he upsets. Meanwhile, Labour is left struggling for air.

None of which is to say there are no paths back to relevance. There are all sorts of charges against the current government that, on the right issues, could be deployed - incompetence, complacency, inequity – by an effective opposition.  Nor is the elixir of relevance for a new opposition hard to divine: a distinct but plausible critique, forensic and timely research, and a credible and clear voice to deliver the message. But as yet we haven’t heard much of it.

Even in the best of times being in opposition is an enervating existence. Those out of power rarely get to set the terms of trade, even if they often like to tell themselves they can. Under Ed Miliband Labour had to strain – sometimes taking big risks - to establish its relevance in a novel era defined by the shifting dynamics of coalition politics. This time around Jeremy Corbyn’s Labour is up against a Chancellor willing to take risks and pick big fights: often with traditional Tory foes such as welfare claimants; but sometimes with people on his own side.  It’s also a new and challenging context. And one which Labour urgently needs to come to terms with.   

Gavin Kelly is chief executive of the Resolution Foundation