The management of variable pay in European banking

Abstract

Banking is a major employer in most large European countries, facing common pressures in terms of competition and technological change. Traditional pay systems have been revised in response to changing business objectives and new forms of work organisation. This paper examines variable pay schemes (VPS) in banking in four countries with very different institutional contexts: Austria, Norway, Spain, and the UK. It finds extensive use of VPS in each case and shared managerial objectives in terms of performance management and cost control. Forms of VPS vary, with Norwegian banks in particular favouring collective forms of bonus, but overall there is a common drive towards individual (merit) pay and multiple bonus arrangements providing increased scope for management discretion. In broad terms, what the case of pay-setting in banking suggests is a course of fading path dependency at national level.

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