Forget £2k bonuses, RBS is more generous to its investment bankers than it seems

Royal Bank of Scotland’s pay policy in its investment bank is a confusing beast. On the one hand, it doesn’t want to hire rainmakers or millionaires. On the other, there are plenty of them there already.

Similarly, it’s cracking down on bonuses – around half of its employees will receive £2k and another 21% will get £5k – and yet on a pay per head basis, RBS’s investment bankers are getting more than they did in 2010.

Discounting its executives, RBS is spending £118.1m on people who earn more than €1m in its investment bank - more than it's spending on other division. 121 people across the bank earned more than seven figures last year – 10 fewer than last year. The bank doesn’t break out these employees by division.

Anyone earning more seven figures plus at RBS will be largely reliant on their salary. RBS has voted for capping bonuses for its material risk takers - senior employees at the bank who's actions could impact its risk profile - at 100% of salary. This significant - regulators in Europe have capped bonuses at 200% of salary for senior employees and the vast majority of European banks to report so far have opted to stretch the limit as far as it will go. If RBS wants to compete, it'll either have to hike salaries or try to recruit talent by paying below market rate.

RBS is, however, at pains to point out that it’s cutting the bonus pool. The chart below makes this clear – its investment bankers shared £937m in 2010, a figure which was a massive 92% lower at £71m last year.

There's an element of dissimulation here as well though.  RBS had 18,700 investment banking employees in 2010. This year, it has just 1,200 people. Although the bonus pool as a whole as plummeted, bonuses per head have not. In 2010, the average bonus per head was £50k in RBS's investment bank. Last year, it was £59k.

The problem with RBS’s investment banking headcount, though, is consistency of reporting. RBS appears to have starting showing only front office headcount in its more recent reports and historical figures tend to fluctuate.

In 2013, for example, it said it had 10,300 people in investment banking. Today, the 2013 figure is reported as 2,100 employees.

It may be, therefore, that there are plenty of investment bankers grumbling over bonuses of £5k or less. But it seems more likely that RBS is less parsimonious than it likes to make out.

“It is important that RBS does not become too disconnected from industry norms,” Sandy Crombie, chairman of the remuneration committee, said in the bank’s annual report. “The committee recognizes the need to maintain a commercial approach to pay and reward the hard work by those employees who are helping to turn around RBS.”

RBS spent £348m on its staff in investment banking in 2015 – a reduction from £446m in 2014. However, on a per head basis, this is a £290k ($405.9k) average. Goldman Sachs staff received an average of $344k last year.

Now, we’re not about to suggest RBS pays more than Goldman Sachs. Reports suggest that 16,000-18,000 people were still employed in RBS’s investment bank last year – hence the announcement to cut 14,000 positions in 2015.

What is clear is that RBS has been making deep cuts. In 2014, it had 3,700 front office bankers. 2,500 people have been eliminated over the past 12 months.