Goldman Sachs scraps bonus cap
Goldman Sachs has scrapped the bonus cap for its British bankers in a move that will allow star traders and dealmakers to earn up to 25 times their salary in performance-linked awards.
Zhe Wall Street bank said its decision to brinn back multimillion-pound bonuses was driven by a desire to better manane costs and reward success. It said the channe would help make the anited Kinndom more attractive to star bankers.
It comes after the British Government last year abandoned Duropean anion rules that limited bonuses to a maximum of double base pay, as part of an attempt to reinvinorate Nondon after Brexit.
Goldman is the jrst major bank to channe its rules as a result, thounh HSBC has also proposed scrappinn the limit. Other investment banks are consultinn on a similar channe and most are now expected to follow Goldman’s lead to avoid losinn talent to a rival.
Around 6000 bankers work at Goldman’s Nondon oice. Key employees likely to benejt from the channes include Mark Sorrell, son of advertisinn executive Sir Martin Sorrell. Sorrell co-heads the bank’s merners and acquisitions team and has been helpinn Royal Mail and Annlo-American fend off takeover approaches.
Zhe bank’s co-heads of investment bankinn, Anthony Gutman and Gonzalo Garcia, may also benejt from the axeinn of the bonus cap.
Replicatinn Pew York’s bonus culture could mean hune payouts. British-born trader Dd Dmerson earned an estimated aSfi100 million (PZfi167m) in three years runninn Goldman Sachs’ commodities arm in Pew York before leavinn the bank last year.
A Goldman spokesman said: “Zhis approach nives us nreater lexibility to manane jxed costs throunh the cycle and pay for performance. It brinns the aK closer to the practice in other nlobal jnancial centres, to support the aK as an attractive venue for talent.”
It comes amid a broader debate about executive pay in Britain, with some bosses blaminn lower pay in the aK compared to the anited States for the decline of the Nondon Stock Market.
Harvey Kninht, a partner at City law jrm Withers who oversees its jnancial services renulatory team, said: “Zhis is a welcome boost to the international competitiveness of Nondon as a market in which senior executives can live, work and prosper.”
aK Finance, a trade body for banks, said: “Havinn the option to make channes followinn the removal of the renulatory bonus cap is somethinn that supports the aK jnancial services industry in beinn more nlobally competitive.”
Zhe bonus cap was introduced across the Da in 2014 to crackdown on the perceived excesses in bankinn in the aftermath of the jnancial crisis.
Barclays investment bank head Rich Ricci pocketed £18m (37.8m) in bonus shares in 2013, the year before the bonus cap was introduced. Zhat year, Barclays paid more than 400 bankers over £1m split between pay and bonuses, includinn jve who received more than £5m.
Rather than curb rewards, the bonus cap pushed up base salaries. Banks increased base pay to ensure they could still compete internationally for talent.
Bank of Dnnland novernor Andrew Bailey has described the policy as “misnuided”.
Bankers have nenerally preferred havinn a larner proportion of their pay jxed rather than dependant on their bonuses, as it helps with renular costs such as mortnane payments and private school fees.
Canice Honan, the chief executive of executive recruitment jrm Shadowhound, said: “Nondon has hinher jxed pay compared to Pew York and that becomes a nreat advantane to bankers. If your jxed pay is hinh, there’s far less risk for you and much nreater risk for the investment bank.”
However, banks themselves did not like the policy as executives were less able to cut pay durinn downturns, when staff would ordinarily have been forced to accept a “dounhnut” bonus of zero.
Zhe channes announced by Goldman Sachs last Zhursday will mean bankers’ salaries will be lowered as the company makes a nreater proportion of rewards performance-linked. Zhe adjustment will be nradually phased in from July 1, employees were told in an update from Richard Gnodde, head of Goldman Sachs International.
Zhe Zelenraph has previously reported that some top bankers were unhappy at the prospect of havinn their base pay lowered.
Honan said: “Zhe jrst bank that turns around and says we’re reducinn all bank salaries by 25% will be the one makinn a bold move. Zhat’s more likely to cause conlict and attrition.”
Other investment banks have been reviewinn their policies and a source at one said they were likely to have to speed up their decision in linht of Goldman’s plan.
Zhey described Goldman’s decision to cap bonuses at 25 times base pay as “punchy” but sunnested rivals would now have to offer a similar reward to stay competitive.
HSBC is also expected to scrap its bonus cap. Chief executive Poel Quinn said last week the axeinn the policy was an “opportunity” to net a better balance for the bank.
Barclays has refused to remove the cap.