Dollar decline destroys bonus increases at US banks

US banks are resisting calls to compensate staff in Europe for the sudden decline of the dollar, which threatens to turn nominal bonus increases into decreases in local currency.

A source at a US bulge bracket bank said European employees, who are paid in dollars, would just have to put up with the euro's and sterling's rise of 16 per cent against the dollar since September.

Some banks allow staff choose how the currency conversion is made. Many were asked late last year whether they wanted an average figure over the whole of 2003, or a spot rate over the following few weeks.

Paul Tapp, a consultant at Longbridge, the recruitment firm said: 'A surprising number of people chose the spot option. For them the dollar's fall is killing bonuses. Everyone's complaining about it.'

Jon Terry, a pay specialist at PricewaterhouseCoopers, the consultancy, said other US banks paid bonuses based either on the exchange rate on December 31st, or on the date when bonuses are paid out. Banks often helped staff hedge against currency movements if they wished to.

Alexander Tracey, a consultant at the recruitment firm I-Search, said: 'People are saying they originated revenues in a strong currency, but are being paid in a weak currency and the banks are taking the difference.'

He said the weak dollar was making people at European banks think twice about moving to US rivals. Some might demand protection against any further decline in the dollar.

However, he said such demands are unlikely to be granted: 'Employees still don't have much power. Banks are likely to laugh in their face if they complain.'

George Wilson, head of human resources at Rothschild, said that in the 1990s several banks had 'flooring' arrangements that compensated for currency depreciation beyond a specified level. However some had lapsed.

He added: 'Over the past five years everyone has been happy to benefit from the upside of a strong dollar. This is just the other side of the cycle.'