It's been assumed that because bonuses have been curtailed in Europe, investment bankers in London now earn massive salaries. In some cases, Wall Street salaries are higher still.
Managing directors (MDs) on Wall Street can now command a basic salary of between $400k and $600k (£266k-£400k.), according to Michael Karp, co-founder and chief executive of seach firm Options Group. By comparison, headhunters say MD-level salaries in the City of London are more commonly between £200-£300k.
Higher salaries on Wall Street than in the City of London seem perverse. Salaries in London were increased in response to bonus regulations, but Wall Street bonus regulations are less onerous. Banks in London must comply with a remuneration code imposed by the UK Financial Services Authority and dictated by the European Union. This code states that at least 40% of bonuses for important staff in the City must be deferred over three years. On Wall Street, the US Federal Deposit Insurance Commission has avoided imposing strict guidelines on the proportion of bonuses that must be held over.
Headhunters say the higher Wall Street salaries date back to late 2008 and early 2009. "Banks increased base salaries and reduced bonuses across the world," said Karp. At the time, basic salaries for investment bankers were pretty similar everywhere, he added.
The current discrepancy is the result of subsequent exchange rate changes, said Lee Thacker, a headhunter at search firm Silvermine Partners. "Initially, senior salaries for bankers in the US were on a par with salaries for bankers in London, but the reduction in sterling means Wall Street bankers have ended up better off," Thacker said. Since September 2008, sterling has fallen 17% against the dollar.
Deborah Rivera, founder and managing partner of US financial services search firm Succession Group, confirmed that base salaries appear to have doubled on Wall Street, although she said overall pay has come down with lower bonuses. This year, however, the average cash bonus on Wall Street rose 9% to $122k. Hard figures are not available for London, but think tank CEBR predicted in November that bonuses in the City would plummet.
With banking salaries on Wall Street having risen in lockstep with salaries in London in 2008/2009, does this imply that Wall Street bankers will get a salary hike as banks seek to sidestep the European Union's bonus cap in 2014? Apparently not. Thacker said the talk on Wall Street is of cutting fixed pay rather than raising it again: "There are a lot of salary reviews happening on Wall Street now."
If fixed pay is hiked in the City to avoid the cap, Wall Street bankers could find themselves paid lower salaries than colleagues in London in future. However, there is a caveat. As currently devised, the European bonus cap will require European headquartered banks to restrict bonuses as a proportion of salaries at their operations around the world, the US included. Bankers at Barclays in New York could therefore end up with far higher salaries than their counterparts at Goldman Sachs. Meanwhile, banks like Goldman and J.P. Morgan may yet reduce currently high banker salaries on Wall Street and choose to increase bonuses instead.