The investment bank Goldman Sachs has become the first to remove its cap on bankers' bonuses following changes to UK laws introduced last year.
The bank said this would give “greater flexibility” and was closer to what happens in other big financial centres such as Singapore and New York. Bonuses were limited to twice basic pay in a move introduced by the EU in 2014.
Other big banks are thought to be considering a similar moves. The limit on bankers' bonuses was introduced by the EU in 2014 despite British opposition, to try to discourage the kind of excessive risk-taking that contributed to the 2008 great financial crisis.
Critics argued that banks were able to get round it by simply increasing base salaries. This then made it harder to reduce salaries when bankers performed badly, or claw back pay if misconduct came to light.
When it brought in the changes, the Financial Conduct Authority said the change should remove these “unintended consequences”.
The decision was first announced by Kwasi Kwarteng during his brief stint as chancellor in 2022, in a bid to boost the competitiveness of London as a financial centre. Banks have argued that the bonus cap makes it harder to attract talent from the US and Asia to the UK.
Goldman Sachs said in a statement: “This approach gives us greater flexibility to manage fixed costs through the cycle and pay for performance. It brings the UK closer to the practice in other global financial centres, to support the UK as an attractive venue for talent.”
A number of other banks have reportedly been reviewing their pay policies in the light of the changes.
When the decision to remove the bonus cap was announced last year, the Trades Union Congress general secretary Paul Nowak called it an “insult to working people” when “millions up and down the country are struggling to make ends meet.”
The change will not be universally welcomed by bankers, some of whom prefer to receive more of their income as guaranteed basic pay rather than bonuses which depend on their performance.
