London – HSBC, Europe’s biggest bank, has caved into pressure and agreed to cancel a pay freeze set for this year after a revolt by staff.

The chief executive Stuart Gulliver told employees that the freeze had been rolled back after protests from bank managers over the plan.

Read: HSBC pledges new era after job cuts

The move comes just two weeks after Gulliver said that the traditional bump in pay packets scheduled for this tax year had been cancelled to help the bank cut costs.

Now the decision has been reversed. “We have listened to feedback and as a result decided to change the way these cost savings are to be achieved,” Gulliver told staff in an email.

“We will proceed with the pay rises as originally proposed by managers as part of the 2015 pay review – noting that, consistent with prior years, not all staff will receive a pay rise.”

HSBC is hoping to save $5bn (£3.5bn) in costs by 2017, and put the pay freeze in place to meet this target. A moratorium on hiring will remain in place.

Staff will learn whether they are to receive a pay rise in their annual performance reviews, which take place in the days after HSBC reveals full-year results on February 22. Any rises will take effect in March.

The money for the pay hikes will be taken from the 2016 bonus pot, which starts accruing next month. Whatever is left over after the pay rises are taken into account will be distributed as bonuses in 2017 – meaning those payouts could be significantly lower next year. Bonuses for 2015 are set to be paid to staff next month.

“As flagged in our Investor Update, we have targeted significant cost reductions by the end of 2017,” HSBC said in a statement.

Bank pay has come under pressure in Europe due to plunging profits, with a number of lenders, such as Credit Suisse and Deutsche Bank, cutting jobs while Barclays has also introduced a hiring freeze. In June HSBC unveiled a plan to cut up to 25 000 jobs and close unprofitable parts of the business.

Gulliver’s move on bonuses will keep the cost of the pay increase away from the bank’s obligations on its variable costs, which will give it more flexibility in meeting the $5bn savings target.

The bank, whose shares slid by 21.25p to 420.15p on Thursday in a falling market, is due to decide imminently about whether to move its base out of the UK. The proposal has been subject to a long-running review, although Gulliver is believed to be leaning towards a decision to remain in London.