CBA's pay predicament

CBA's compensation crackdown earlier this week looks likely to save low-level jobs, but the bank's belt-tightening includes a management-level pay freeze which could restrict its ability to retain and recruit senior staff.

The austerity measures begin at the top, with a 10 per cent pay cut for chief executive Ralph Norris, and a 5 per cent reduction for CBA's executive team.

The firm also says it won't offshore jobs for the next three years and is attempting to avoid a major redundancy program by limiting wage growth to 1.5 per cent for the 70 per cent of its 40,000 staff who earn less than $100k a year.

The Finance Sector Union has applauded the plans, saying they may have potentially prevented thousands of layoffs.

But most eFinancialCareers readers will be more concerned about the way CBA is freezing the pay of its higher-earning employees. Those on $100k or more are now subject to 12-month salary-increase bans.

This policy will probably make it even more difficult for CBA to recruit candidates from foreign investment banks, or to prevent its top talent from jumping ship. It's ironic that firms like UBS and Merrill Lynch - which were savaged by the financial crisis - are now raising salaries in Australia to aid retention, while the comparatively cashed-up CBA has opted for a freeze.

"CBA's move just sends a wrong signal to the market. Recently the Big Four have been pretending that they can compete with the foreign firms on salaries, but this is a clear indication that really they can't. Local banks are still missing out on good people because of their pay policies," commented one headhunter, who asked not to be named.

Warren Price, managing director of Select Personnel, agrees that Australian banks have generally taken a conservative approach to salaries over the last 12 months, but he warns that they will soon need to get more generous.

"The common assumption that there's a huge pool of quality candidates available is incorrect. If present financial conditions continue to improve, we will see a salary spike after the first quarter of 2010 due to a supply shortage of talent," adds Price.

So come next year, an increasingly competitive job market may force CBA to stop being a salary scrooge.