Goldman Sachs is taking the unusual step of cutting the salaries of hundreds of its London bankers by invoking a contractual clause to phase out former pay increases by the end of the year.
The move follows a previous announcement by the New York-based investment bank’s that it plans to cut about 1,000 staff across the world and that it reduced the total amount set aside for salaries by 9% to $8.4 billion during the first half of the year. The move followed an 11% drop in net revenues. The bank initially awarded the two-year pay increases under question to mid-level staff in its London office in 2009 amid intense political, regulatory and public scrutiny over pay levels. The aim was to boost base salaries and provide personnel with more certainty about their income at a time when it started seeming likely that bonus pools would have to be slashed. But the pay deals are now expiring and so, amid tougher market conditions, Goldman Sachs has informed affected workers that their salaries will be cut in line with current market rates. Swiss banks UBS and Credit Suisse were the first banks to raise base salaries in early 2009, but Goldman Sachs and others followed suit amid fears that they could lose staff to rivals. At least two other banks are thought to have similar clauses in their employee contracts, however, and, because Goldman Sachs’ pay levels are perceived to be the industry benchmark, they are likely to go down the same path.