Bonuses not always best for bank reward

Bankers see their pay, termed "compensation" in banking parlance, as salary plus bonus, with the latter under threat following the economic meltdown last year.

Citigroup, which employs around 10,000 people in Canary Wharf, had a $45billion bailout from the US Government last year and was told to curb bonus payments as a result.

That left it vulnerable to having its best young traders poached by rival institutions, prompting bosses to take the decision to raise basic salaries, with the biggest increases going to investment bankers and traders.

A Citi spokesman said: "Citi continues to examine ways to ensure its employees compensation practices are competitive in this very challenging market environment.

"Any salary adjustments are not intended to increase total annual compensation, rather to adjust the balance between fixed and variable compensation."

It is a similar situation at Morgan Stanley, although it had a less traumatic time of it during 2008 than many of its competitors, including Bank Street neighbour Lehman Brothers.

Morgan Stanley have revised their compensation packages to strengthen its "pay for performance" policy. Measures introduced include increasing basic salary levels to offset bonuses, along similar lines to Citigroup.

The bank has also implemented a "clawback" policy, designed to stop reckless practices on the trading floor. The clawback is triggered if an individual's conduct harms the business. Morgan Stanley would be able to reclaim money from employees for up to three years after compensation was awarded, giving plenty of time to gauge the long-term effects of individual actions.

Barclays are yet to decide on their compensation packages for this year, even though the Churchill Place-based bank avoided the fate of competitors like Lloyds TSB and HBOS which had to be bailed out by the Government.

A spokeswoman said: "Our arrangements are under review and the outcome will not be forthcoming until the end of this year or early next year."

Sir Richard Broadbent, chairman of Barclays remuneration committee, outlined the bank's approach earlier this year.

He said: "We are conducting a complete review of remuneration. We want to make sure that our remuneration policies evolve appropriately in a changing business environment.

"In particular we need to ensure remuneration is appropriately structured to deliver shareholder value, which means being clear for example about the balance between incentivising return on capital as opposed to profit growth; that our pay for performance systems operate effectively: that our remuneration is well governed and controlled; and that our approach to remuneration is sensitive to the views of, and explicable to, all our stakeholders notably shareholders and employees."

Nomura, who took over Lehman's UK operations last year, announced in June it too was switching to a performance-related pay rather than traditional packages.

Credit Suisse and HSBC would not comment on whether they have changed their incentive package this year.