Few people may be familiar with the names of McLagan Partners, MG Management Consulting and the Monks Partnership but it could be a good idea to become better acquainted: they play an important role in determining investment banking remuneration.
They are specialists in pay benchmarking. They collect salary and bonus data from banks and sell their findings to interested parties. Purchasers can then gauge how generously their employees are rewarded compared with those at rivals.
David Atkins, a consultant at the Monks Partnership, said he worked with about 180 financial services companies, including investment banks. He said: "Pay benchmarking is fairly widespread in the City of London. Some organisations buy our data two or three times a year; others buy it occasionally to see which areas of expertise are at a premium."
The Monks Partnership worked mainly with small European and Japanese banks, he said. Pay information from large European and American banks is the domain of two US benchmarking companies, McLagan and MGMC.
Like banks when it comes to discussing pay, the organisations are highly secretive. Stuart Main, a managing director with McLagan Partners, declined to be interviewed, saying the company never engaged in self-promotion. Mike Curran, managing director of MGMC was similarly reticent. "We're not interested in the kind of publicity that comes from talking to the press," he said.
This similarity of approach is more than coincidence: according to one senior pay and benefits consultant at a US bank in London, MGMC is staffed by defectors from its rival. "McLagan used to be the only firm in this market but a few years ago some of the best people left and set up MGMC," the consultant said.
He described Curran as a guru when it came to investment banking pay. "He knows the investment banking sector inside out. You can sit him in front of the remuneration board and they'll listen," he said.
George Wilson, head of human resources at Rothschild, said the British bank continued to favour McLagan. He said: "As far as we're aware, it is the only real provider of this service and has a classic monopoly. All the big banks take part, which means we're able to request special cut-of-pay data from the 10 groups we consider our main competitors."
Wilson said the McLagan data has had a definite impact on staff pay. He said: "The way we reward people in terms of base pay and bonus is influenced by two things: what McLagan tells us is happening elsewhere and what we can afford. We will pay highly for top people. By consulting the McLagan survey, we're able to position ourselves against the top banks."
The head of HR at a US investment bank in London said benchmarking surveys were just one of the methods it used to measure the generosity of its competitors. He said: "We hire people all year and we lose people all year, so we're constantly in touch with what the market is paying."
Benchmarked data are most useful for setting back-office pay, where salaries account for a high proportion of the total, he said.
However, Wilson said too many banks relied on information from McLagan. He said: "It is only as reliable as the data given to it by competing firms. Plus, you are told what people were paid last year, which isn't always a great predictor of what people will be paid this year." He said headhunters could be a better source of pay advice. "They tell us what's happening right now, on the ground."
But Jonathan Baines, a director of search firm Whitehead Mann, said headhunters were only able to provide pay information for top people. "We only really find out about compensation for the group of people that others want to hire," he said.
Ellen Yaffe, managing consultant at the Rose Partnership, said search firms were useful when it came to providing banks with contemporary information. She said: "A bank might be building in high yield and changing people's expectations regarding pay.
"We can let our clients know this as it happens. McLagan cannot. It is best used as a sanity check to ensure pay last year wasn't wildly out of line with the market."
So what is happening to pay now? Base salaries are rising, after years of stagnation. A pay specialist at a US bank said: "There's pressure to look at salaries. In the past few years we've emphasised total compensation and kept fixed costs down. But we've left salaries alone for too long and now the market's picked up, there's a lot of pressure to raise them."
Yaffe said: "There was a period when bonuses were so huge that banks could get away with keeping fixed salaries low. But bonuses have come down to reasonable levels and there has been pressure to revisit base salary levels, which in many cases haven't been raised for several years."
The trend is confirmed by the latest survey from Morgan McKinley, a back and middle-office banking recruiter. It found average middle and back-office salaries rose 7.5% in the three months from February. If that rate of increase is sustained, banks relying on benchmarked data to set pay could find themselves paying 25% below the market average by the end of the year.