European pay divide narrows

Andreas Weig, a headhunter at Korn Ferry in Frankfurt, says: "Base salaries in Frankfurt are generally around 60% to 70% of those in London. And they are higher in Frankfurt than in Paris or Milan."

Alberto Gavazzi, a consultant at Russell Reynolds in Milan, says that pay generally gets lower the further south you go.

Variations are greatest for junior staff. Mark Axworthy of headhunters the Charterhouse Partnership, says: "VPs in the City of London typically receive a base salary of between E116,000 ($112,600) and E132,000."

As predicted, this compares favourably to Frankfurt. Jürgen Merkel, a managing partner at boutique financial services headhunter Magdalena Bohn und Jürgen Merkel, says that junior VPs in Frankfurt earn around E80,000 base salary. Pay in Paris is also poor.

Marc de Leyritz, a consultant at Egon Zehnder in Paris, says that an experienced vice-president in his or her mid to late thirties, working for a French bank in Paris, will typically receive a base salary of between E115,000 and E140,000. First-year VPs in Paris typically earn around E80,000 to E110,000, says de Leyritz.

Remuneration is even lower elsewhere on the continent. Similar VPs in Milan earn only E75,000 in base salary. Meanwhile, Chris de Groot, director of Financial Assets, a financial services search specialist based in Amsterdam, says that senior corporate financiers working in that city earn no more than E100,000 base.

De Groot says: "Salaries are rising as financial services in Amsterdam becomes more professional. But they will never be as high as in London."

However, national deviations in base pay pale into insignificance when compared to discrepancies between bonus levels. In a good year, bonuses in London can be many multiples of base salary. But bonuses at continental European banks are usually no more than one or two times base, and can be substantially less.

Bonuses for junior VPs in London were down by between 40% and 50% in 2001, says the Charterhouse Partnership's Axworthy, but they were still at least one or 1.5 times base. In Germany, Merkel says that bonuses for comparable pay were 60% of base, at the very most.

Poor bonuses have traditionally been endemic in France, where high taxes and lingering affinity with socialism encourage financial modesty. Egon Zehnder's De Leyritz says: "In a typical French bank, people usually receive between 50% and 100% of their salary in bonus. For a bonus to be a significant multiple of salary is unusual. Even very good people will only get a bonus of 150%."

Coupled with the fact that base salaries in Paris rarely exceed E150,000, de Leyritz says that this means that someone working for a French bank in Paris was traditionally able to double their salary by moving to London.

However, in recent years, both BNP Paribas and Lazard have aligned their pay with US banks. For employees of these banks de Leyritz says that the discrepancy between the cities has fallen to 20%.

In many countries, punitive redundancy pay-outs discourage employers from paying big bonuses. Unlike the UK, severance pay in Italy is based on the total package rather than the salary alone. Similar arrangements are in place in France, Italy and Holland. As a result, banks are cautious about being too generous when redundancies are imminent. Russell Reynolds' Gavazzi says: "There is a big incentive not to pay big bonuses."

Nevertheless, the paucity of continental pay is less noticeable at senior levels, even though bonuses are typically bigger. In Frankfurt, Kornferry's Weig says that a lot of managing directors are still due to receive guaranteed bonuses of between E1.5m and E2m in 2002. However, next year guarantees will be obsolete; bonuses are likely to be substantially lower as a result.

Base pay on the Continent may also fall. An influx of returnees made redundant in London means that the supply of bankers substantially exceeds demand. In Frankfurt, Paris and Milan, pay is falling as former expatriates come home.

Nevertheless, there are some financial advantages to working in Continental Europe. Bonuses, for example, are more likely to be paid in cash. Deutsche Bank has increased the proportion of bonuses allocated to equity and stock options, but it is one of the exceptions. Gavazzi at Russell Reynolds says: "Italian banks pay less, but it is almost all cash."

Equally, the cost of living is lower. The Economist Intelligence Unit says that the monthly rent for a mid-priced one bed furnished apartment in Paris is E976. In London, a similar flat would cost more than E1,500.

Coupled with the fact that American investment banks pay all staff the same fixed salary no matter where they are located, this means that staff in low cost cities such as Athens or Lisbon, may be better off.

Best off of all however, is the elite group of top European investment bankers for whom the pay plunge of 2001 never happened. Rupert Channing at Heidrick and Struggles in London says that everyone that he has placed so far in 2002 has received a guaranteed bonus.

In Frankfurt, Andreas Weig says that Germany's small clique of top bankers earn as much as they did in 2000: more than E3m. "For the big boys, you have to pay well no matter where they are in the world," he says.