Goldman Sachs' top London staff are set for huge increases in basic pay this year, plus special "role based" allowances, as the bank grapples with the European Union's bonus cap.
In 2013, Goldman splashed out $383,373 (£234,493) per employee on average as profits came in 5 per cent ahead of the previous year at $11.7bn. The role-based payment is understood to be similar in structure to a scheme set up by Barclays. The allowances are set at the beginning of the year, and paid to high-level staff in monthly instalments.
The payments are not performance linked, but can be altered based on economic conditions and the bank's forecasts.
Staff were informed of their bonuses from 2013 yesterday; unusually, though they were not told what their salaries for 2014 would be – a surprise to many and one that has created considerable rumblings at the bank. That is because the role- based payments have yet to be finalised. Details will only be released at the end of the month.
Because the scheme will have an impact on pay for some, but not all, bankers, it is understood that information on this year's salaries will be held back for everyone until that time. The bonus cap limits payouts to 100 per cent of salary, with an option of 200 per cent if a "super majority" of shareholders can be persuaded to agree.
It has proved a headache for banks, which have been reluctant to scale down pay to people whom they adjudge to be top performers.
Most European bankers affected by the cap work in London, and Britain is challenging it in the European Court of Justice. It argues that the measure limits the ability of banks to "claw back" rewards from staff who are responsible for harming their employers.
Critics of the cap also claim that it reduces the flexibility of banks in terms of cutting variable pay when times get tough and they need to conserve capital. UK regulators and the Bank of England are also dissatisfied with the measure.
Goldman's overall compensation ratio – the amount of revenue set aside to pay staff, which is closely watched by shareholders – fell slightly to 36.9 per cent from 37.9 per cent the previous year. Total staff increased to 32,900 at the end of 2013 from 32,400 at the end of 2012.
The average pay figures have to be viewed with a degree of caution because the staff number includes secretaries and support staff. Typically, a partner at the bank will receive at least $600,000 in base salary, but that figure will be dwarfed by bonus payments based on work done and revenues attributed to particular bankers or traders.
Goldman endured something of a slowdown during the final three months of the year, with earnings slipping to $2.33 billion compared with $2.89 billion a year earlier. However, the number was still ahead of Wall Street expectations.
Revenues from fixed-income trading dragged it down, but the number was buttressed by a sharp rise in fees for underwriting and advising on flotations and other share issues.
Goldman's chief financial officer, Harvey Schwartz, said of the last year: "When you boil it all down, the 2013 environment is just one where the world took two steps forward followed by one step back – a dynamic which you could see reflected in both price movements in the markets, and client activity." But he added that the long- term trend was "steadily improving".
Goldman's better than expected numbers came in sharp contrast to another big US bank reporting yesterday. Like Goldman, Citigroup took a hit from declining bond trading revenues. With a wider portfolio of businesses, its fourth-quarter adjusted earnings, which strip out costs from restructuring and layoffs, rose to $2.6bn from $2.15 billion a year earlier. But that was nearly 14 per cent lower than analysts forecasts, causing a sharp fall in the share price.