Pay Transparency vs Pay Inflation: The New Compensation Challenge for Banks

Compensation has always been central to attracting and retaining talent in financial services. But in 2026, banks and advisory firms are navigating a more complex landscape than they have faced in recent memory. Rising expectations around pay transparency — driven by regulation, candidate behaviour, and cultural shifts — are colliding with persistent inflationary pressure on salaries and total packages. The result is a tension between openness and cost control that is becoming one of the defining employer challenges in investment banking and asset management, on both sides of the Channel.

1. Transparency Is Reshaping Expectations

Greater visibility around compensation is changing how finance professionals assess opportunities and how they evaluate their current employer.

In France, pay transparency has been moving faster than in the UK, partly driven by EU-level directives on equal pay reporting that are now being implemented across member states. In the UK, while formal regulation has been slower to materialise, the direction of travel is clear. Candidates at VP and director level now arrive at interviews with a far more detailed understanding of market rates than they would have had even three or four years ago. Salary benchmarking tools (often AI-led), peer networks, and data shared by recruiters have created an environment where compensation decisions are no longer contained within HR departments. At the same time, each knows that banks are beholden to strict grids meaning any negotiations tend to centre around total compensation, equity splits or guaranteed packages.

For banks, this means inconsistencies are harder to sustain. A VP who discovers that a lateral hire into the same team is being paid £40,000 more for comparable work will not simply accept the explanation that packages reflect individual negotiation. They will disengage, update their LinkedIn profile, and start taking calls from headhunters. In an environment where experienced dealmakers are already in short supply, that is a risk most firms cannot afford to take.

The practical implication is that compensation frameworks need to be consistent, defensible, and clearly structured — not just internally logical but explainable to the people they affect.

2. Inflation Is Raising the Baseline

At the same time, inflationary pressure has reset expectations around what constitutes a competitive package. Across the UK and France, salary increases that would once have been seen as generous are now often viewed as necessary adjustments rather than discretionary rewards – particularly at mid-level, where the cost of living in London and Paris has risen sharply.

For firms, this creates a difficult dynamic. Broad-based pay increases are rarely sustainable, especially for advisory businesses where revenue is inherently cyclical. We saw two increases between 2020 and 2022 as banks sought to retain talent in a frenzied recruitment market and they're unwilling to raise base salaries a third time. However, if a firm fails to move quickly enough, it risks losing strong performers to competitors who will. We are seeing this play out in real time: VP-level bankers in M&A who might previously have waited for their next bonus cycle are increasingly willing to move mid-year if the right opportunity offers a meaningful step-up in guaranteed compensation.

The result is a more selective approach, with pay rising fastest in the areas where candidate demand is strongest – sector specialists in energy transition, aerospace and defence, and technology – while broader coverage roles see more modest adjustments. This is rational from a cost perspective, but it introduces its own set of complications when teams compare notes.

3. Internal Equity Is Under Strain

This is where transparency and inflation intersect most painfully. As firms pay premium packages to attract new hires in competitive areas, gaps inevitably emerge within existing teams. A director hired eighteen months ago on what was then a strong offer may now sit alongside a lateral hire who joined on a noticeably higher package. Both know it.

In the past, these differences could be managed quietly. In a more transparent environment, they surface faster and create friction sooner. We regularly speak to candidates whose primary motivation for exploring external opportunities is not dissatisfaction with their role, their team, or their firm's deal flow – it is the perception that their compensation no longer reflects their contribution relative to more recent joiners.

To manage this, firms need clear frameworks and regular benchmarking – not just against external market data but internally. Compensation reviews that happen only at bonus season are too infrequent to catch emerging imbalances. The firms that handle this well tend to conduct mid-year check-ins on internal equity, adjusting base salaries or guaranteed elements before dissatisfaction has a chance to calcify into resignation. Without this discipline, compensation quickly becomes reactive rather than strategic.

4. Communication Is as Important as the Numbers

In a more transparent environment, how decisions are communicated matters as much as the decisions themselves. This is something we see play out consistently across both the UK and French markets.

Employees are more likely to accept constraints – a smaller bonus pool, a year without a base increase – if they understand the rationale behind them. Conversely, even competitive packages can fail to retain talent if the person receiving them feels the process was opaque or arbitrary. A strong performer who receives a good bonus but has no visibility into how it was determined will often feel less valued than one who receives a slightly smaller figure but understands exactly where they stand and why.

Clarity, consistency, and realism build trust. This applies to the offer stage as well: candidates who are walked through the full compensation picture — including pension contributions, any profit sharing, social charges in France, deferred elements, and long-term incentive structures — tend to engage more seriously and are less likely to be swayed by a competing headline number that lacks substance beneath it.

Conclusion

Pay transparency and pay inflation are reshaping compensation in banking, and neither trend is likely to reverse. Together, they require a more structured, deliberate, and communicative approach to reward – one that goes beyond headline salary and addresses internal equity, market positioning, and the way compensation decisions are explained to the people they affect.

The firms that navigate this well will be those that treat compensation as a strategic function rather than an annual administrative exercise. That means investing in frameworks, benchmarking regularly, and communicating openly — even when the message is that budgets are constrained. Professionals in investment banking and asset management are realistic about market conditions. What they are far less tolerant of is a lack of transparency about the process itself.

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