Financial News

  • 4 February 2014, 3:20

Wall Street Giant Awards Bumper UK Pay Rises

Bank of America Merrill Lynch (BAML) has become the latest big financial institution to dish out substantial pay hikes to its top City staff as it tries to sidestep new European pay rules.

Sky News has learnt that BAML is increasing the annual base salaries of hundreds of London-based managing directors to $500,000 (305,000), a top-up of roughly 20% from their current level.

Employees were informed about the inflation-busting rises last week.

Like other global banks, BAML is keen to avert the prospect of its top staff being poached by rivals which have chosen to increase pay under new restrictions meaning they can pay only up to double an employee's salary in bonuses.

BAML, which was created from the takeover of Merrill Lynch by Bank of America during the 2008 financial crisis and employs well over 5,000 people in London, is also planning to award senior staff bi-annual cash allowances.

These awards, which will form part of the base salary sums used to calculate maximum bonuses from this year onwards, will be paid in October and December, according to a person briefed on the plans.

BAML is understood to have decided to pay these allowances in cash unless their remuneration crosses a $5m (3m) threshold.

Because they are part of an employee's basic pay, banks have discretion to hand them out in cash, while bonuses are subject to more formal restrictions imposed by regulators, meaning a substantial chunk has to be paid in shares.

The new allowances, which are being called role-based pay, will mean that banks can pay a much higher multiple of base salaries to their key staff than was intended by the new rules.

Plans by Barclays, Goldman Sachs, HSBC and Morgan Stanley to devise different forms of payments to senior staff have been disclosed in recent weeks by Sky News.

The BAML awards are modestly different in that they also entail an increase to hundreds of employees' basic salaries, as well as the awarding of the new role-based allowances.

Sky News has also revealed that banks based outside the European Union do not have to seek approval from their parent's shareholders to lift the pay ratio from one times salary to double that sum.

UK lenders such as Barclays and HSBC have privately complained that this creates a further loophole which disadvantages them, although in practice, that will not be the case if shareholders back motions at this year's annual general meetings allowing them to pay bonuses at the higher level.

However, the fact that international rivals have already been able to give staff certainty about their pay from this year onwards was proving to be a valuable recruitment tool, bankers say.

The Chancellor is aware of the loophole benefiting non-EU banks, aides said on Friday.

George Osborne is fighting the ratio cap in the courts. One senior Treasury official said that while the Government is confident that it has "a decent legal case", recent defeats to Brussels had left it only mildly optimistic about emerging victorious.

A BAML spokesman declined to comment on Monday.

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