Goldman Sachs is set to cut salaries for some of its London investment bankers as an agreed two-year pay rise deal comes to an end, a source familiar with the matter said.

Increases in base pay agreed in 2009, partly in response to harsher bonus rules coming in and to competition for staff with other banks, contained clauses to terminate the rise, which will now be invoked, the person said.

Fewer than half of the firm's 6,500 employees in London were given the two-year pay rise.

Goldman Sachs declined to comment.

The clauses allow Goldman to get around a pay headache that has hampered investment banks this year as they grappled with shrinking revenues and growing salaries.

Many have had no option but to cut even more jobs than they might otherwise have done because they have lost the ability to tinker with bonus pots as they used to when trying to rein in costs.

Goldman bankers have not escaped the cull sweeping the industry, however. It was hit in the second quarter by a sharp drop in trading income from fixed income, currency and commodities (FICC), traditionally one of its top money spinners.

Revenues there fell 53 percent from a year ago, and it said in July it would cut about 1,000 jobs this year.

Analysts believe other banks may follow suit in trying to cut salaries, allowing them to spare jobs, but without a clause like that included in the Goldman contracts, that may prove to be a slow and painful shift.

Banks are going to have to ratchet back compensation ratios, and gradually bring salaries down again, said Matthew Czepliewicz, an analyst at Collins Stewart.

They can do this with new hires, new promotions, leading to a blended washing out of fixed pay rises.

Some industry surveys have already shown salaries for new starters dipping. Recruiters Morgan McKinley said the average salary for those securing new roles in July fell 3 percent from a year ago, the first decrease in many months.

(Reporting by Sarah White, Editing by Douwe Miedema and Will Waterman)

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