Lionel Laurent is a Bloomberg Gadfly columnist covering finance and markets. He previously worked at Reuters and Forbes.

You would think that, given the stock-market meltdown battering European financials and a fresh wave of layoffs expected to come, bankers would be glad enough just to keep their jobs. But that's far from the case.

The Way We Were
European bank share slide hasn't dented complaints on banker bonuses
Source: Bloomberg

HSBC has decided to drop a global pay freeze after less than two weeks, according to a memo to employees, following an angry backlash from staff. Bloomberg News reported that the move would have canceled increases already recommended as part of the bank's 2015 pay review -- obviously not welcome news for employees with spending plans in mind -- and it looks like staff got the better of management in this tug-of-war.

This is a worrying development, and not just for HSBC. Getting costs under control is the number one issue for Europe's banks after years of layoff plans and pay cuts that have failed to keep pace with a drop in revenues. The latest quarterly results from European banks have shown costs as a proportion of income are rising, not falling. To be sure, a lot of that is because of the ongoing burden of regulatory and technology overheads, but pay experts say average compensation has not come down enough either.

If HSBC management can't walk the walk after talking the talk on pay, that might lead investors to question the whole sector's commitment to managing costs. UBS froze investment bank salaries this week, Barclays extended a freeze on hiring indefinitely in December and both Credit Suisse and Deutsche Bank are cutting thousands of jobs. But investors want banks to go even further, cutting business lines or selling assets more aggressively. Any wavering at the first hurdle won't help restore confidence.

Getting Worse
Banks' expenses as a proportion of revenue are rising, sometimes markedly
Source: Bloomberg, company reports

And that confidence has had a very bad knock. Credit Suisse shares sank to a 27-year low as investors question its profitability and restructuring plan. Deutsche Bank has had to put out reassuring statements on its ability to repay debts after a surge in its debt costs. While investors say a repeat of the 2008 crisis is unlikely, banks are nonetheless in the firing line as fears on the economic outlook grow.

Against this backdrop, the pay row at HSBC suggests that financial-sector employees have yet to reset their own expectations for salary. An early look at this year's bonus season from salary benchmarking website Emolument showed double-digit increases for total compensation for front-office bankers across the spectrum. Ironically, though, the website's survey also suggested few bankers were actually satisfied with their bonuses, pointing to lower morale across the banking sector after years of cuts.

Selloff? What Selloff?
Self-reported compensation climbs at London banks, though mix between basic pay and bonuses varies
Source: Emolument survey of 1,235 front-office bankers

This disconnect between staff and management views on pay needs to be fixed. Finance is extraordinarily well-paid relative to other industries -- which is the completely opposite story to that told by financial markets, where the banking sector has underperformed the broader market since the crisis. If investors are to believe that management has got the message, both sides will have to meet somewhere in the middle. And soon.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Lionel Laurent in London at

To contact the editor responsible for this story:
Jennifer Ryan at