As we reported this morning, Barclays is said to be cutting salaries for everyone whose base pay exceeds £500k. Barclays isn't commenting. However - and as we also suggested this morning, Barclays can supposedly cut salaries for its investment bankers quite easily. It's said to have only increased them on a temporary basis.
"When Barclays increased their salaries, they did so by adding an annual fixed additional sum to people's existing salaries," insists one senior headhunter. "This wasn't pensionable and could be repealed."
Goldman Sachs is said to have done something similar, except Goldman's salary increase was restricted to 24 months. When 24 months elapsed, we were the first to report Goldman's decision to reduce salaries in July 2011. Barclays' increase was allegedly open-ended. Now it seems Barclays is finally following Goldman's lead.
But what if, unlike Barclays and Goldman, you work for a bank that increased salaries and didn't make provision for reducing them again? Headhunters tell us that this is what happened at the vast majority of organisations. Those short-sighted banks are now somewhat stuck. But they seem to be seeking ways out of the mire.
We spoke to two employment lawyers in London, one at a magic circle firm, one at a US law firm, both of whom became distinctly cagey when asked about the legality of banks reducing basic pay. "This is all a bit too sensitive about the moment," said one, declining to comment. Another said that he couldn't comment because he'd been approached by a leading bank that is seeking advice on the matter.
Speaking on condition of anonymity, one lawyer told us banks could reduce salaries simply by compelling existing staff to sign new contracts."You need to strong arm it through and essentially threaten employees with dismissal unless they sign," he said.
There are risks to this approach. Lawyers say employees could refuse to sign the new contracts and could then sue banks for unfair dismissal. However, compensation for unfair dismissal is capped at £75k, making this a risk that banks are apparently willing to take.
One headhunter tells us Credit Suisse is talking about issuing this kind of salary-cutting tactic. "They're thinking of doing it at the same time as Barclays. It's been talked about a lot at MD level," he claims.
Credit Suisse declined to comment. However, other headhunters pointed out that it seems counterintuitive for any bank to cut base salaries until the European Union's approach to compensation becomes clear: powers within the EU would like to restrict bonuses to 100% of salaries, creating pressure for base pay to stay high.
Peter Hahn, a lecturer at Cass Business School and former adviser to the UK FSA on remuneration issues, says most banks are likely to take a less direct approach to cutting fixed compensation costs. "The challenge of reducing investment banking pay is being largely met by reducing the number of highly paid posts and changing expectations at the junior level," he says.
"It's very hard for banks to simply cut pay," says Hahn. "Doing so implies that senior managers will cut their own compensation as well."