Deutsche Bank AG  and Barclays PLC  will cut salaries for its investment bankers by as much as 20% in the coming weeks in order to reign in spending. The move is part of a general trend that has seen the financial industry cut costs in order to increase profits on falling revenue.

Deutsche-Bank

The news comes from a Reuters report filed earlier today, the report cites sources familiar with the matter. According to those sources, Barclays is currently finalizing compensation and bonus packages for the 2012 fiscal year, and those pay packets are going to be, on average, 10-20% lighter than they were in 2011.

Deutsche Bank AG (ETR:DBK) (FRA:DBK) (NYSE:DB) is seeing similar changes. Their investment bankers will see payment fall by 15-20% on average. The company is in the middle of large scale restructuring, and the cost cutting exercise is seen as a key pillar in that restructuring. The entire financial industry has been undergoing such changes in recent years in order to remain profitable.

European regulators have also put pressure on investment banks to stop offering large short term bonuses. those bonuses are seen as encouraging the kind of short term reward, high risk behavior that led to the 2008 financial crisis. Though bankers may not agree, a cost cutting strategy that aligns safely with regulator’s ambitions is too good to pass up.

Barclays PLC (NYSE:BCS) is generally regarded as the most important of the British financial institutions, is, like most others, facing higher costs as tougher regulations come into the financial industry. The response to this has been cost cutting, as most segments of the industry have found it more difficult to generate revenue.

That may be changing, however, Private Equity funding is up, and Wells Fargo & Company (NYSE:WFC) released a pretty impressive earnings report last Friday. The financial institutions may be recovering, but that recovery is unlikely to majorly outstrip the performance of the wider market, simply becaus banking requires there be more money available for investment, that means a more vibrant economy.

The changes in payment structure at banks like Deutsche Bank AG (ETR:DBK) (FRA:DBK) (NYSE:DB) and Barclays PLC (LON:BARC) (NYSE:BCS) (LON:BARC) are not going to help attract more people intot eh financial industry, but it is likely to be a hit with shareholders at the company. Both of the firms have seen their shares perform extremely well in the opening weeks of 2013.

Barclays PLC (LON:BARC) (NYSE:BCS) stock has risen by almost 11% since the start of the year, while Deutsche Bank AG (ETR:DBK) (FRA:DBK) (NYSE:DB) investors have seen stock in the company increase by a little more than 11% in the same period. 2013 is, quite possibly, shaping up to be the year in which the financial industry returns to its stride, and cuts in compensation may be the key to making that strategy work.

Revenues were up only slightly at Barclays in 2011, and 2012 is expected to bring moderate declines with a small return in 2013 revenue. The banking industry is nowhere near fully recovered, but it’s heading in the right direction. Moves like the compensation cutting will help restore investor confidence as profits are seen staying level, if not improving.