1m salaries arrive in London as the FSA talks about elephants

The FSA's compensation edicts are causing hassle to the headhunters trying to help banks hire senior staff.

The new rules don't apply to anyone earning less than 500k in total compensation who also receives less than one third of this as a bonus. They DO apply to heads of business and risk takers (so-called 'code staff').

These code staff are not able to negotiate multi-year guaranteed bonuses. And they are only able to receive one year guarantees in 'exceptional circumstances.'

The precise meaning of 'exceptional' is causing pain.

"We've just tried to finalise a hire and the bank has suddenly decided they can't go ahead with the contract because they're not sure about the guarantee," says one the head of one search firm. "It's an absolute nightmare. Senior people aren't going to be comfortable with moving unless there's some visibility on pay."

Defining 'exceptional'

Jon Terry, head of the compensation practice at PricewaterhouseCoopers, says the FSA has declined to offer a precise definition of what constitutes an 'exceptional' bonus. However, he says the regulator favours the following test:

'When you see an elephant, you know an elephant.'

"If you're hiring 15 people and you're putting them all on guarantees, it's clearly not exceptional," he clarifies.

Some banks are more willing to create elephants than others. RBS is understood to be particularly risk averse, suggesting it will find it difficult to hire anyone senior as a result.

Seven figure salaries are here

Others banks have simply decided to sidestep the FSA by massively increasing salaries.

"I've seen half a dozen or so salaries of 1m," says Terry. "They're just for heads of business and high performers.

"It makes sense," he adds. "In the past these people would have been on multi-year guarantees. If they don't work out, banks can simply exit them after two years anyway."

The danger in all this is that banks will be discouraged from making big hires in the UK.

"Britain will become less competitive because the banks now have much higher fixed costs. They didn't want to pay the higher salaries, they were forced to," one 'City Source' told the Sunday Times.