Goldman Sachs has scrapped the bonus cap for top-performing London bankers in a move that it claims will make the UK more attractive to star traders and dealmakers.
The investment bank said that its decision to bring back multimillion-pound bonuses was driven by a desire to better manage costs and reward success.
It comes after the Conservatives abandoned European Union rules that limited bonuses to a maximum of double base pay, as part of an attempt to reinvigorate the City after Brexit.
Goldman – which is one of the first major banks to change its bonus rules as a result – suggested the overhaul would help London compete with international rivals such as New York.
A spokesman said: “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.”
For the bank’s traders and dealmakers, the change means fixed pay will be lower, but bonuses can be as great as 25 times the base salary.
The adjustment will be gradually phased in from July 1, employees were told in an update from Richard Gnodde, head of Goldman Sachs International.
The bonus cap was scrapped in October by the Bank of England’s regulatory arm, the Prudential Regulation Authority.
It was introduced by the EU in 2014 and dictated that banks, building societies and investment firms should avoid paying its biggest risk-takers more than twice their base pay in bonuses.
Industry insiders warned that this made them less able to cut pay during downturns, when staff would ordinarily have been forced to accept a “doughnut” or bonus of zero.
Firms ended up paying workers a higher base salary instead, with redundancies more likely during recessions as there was no flexibility to save on costs without axing employees.
Many senior financial figures had criticised the ceiling on bonuses publicly, including Bank of England boss Andrew Bailey who has described it as “misguided”.
HSBC is expected to follow suit in removing the limit later this week.
Other investment banks have been reviewing their bonus policies, and a source at one said they were likely to have to speed up their decision in light of Goldman’s move. They described the decision to move the cap to 25 times bankers base salary as “punchy” but suggested rivals would have to offer a similar level of reward to stay competitive.
The shift in remuneration comes amid an intensifying debate about pay levels in the UK for financial services staff and chief executives struggling to keep pace with the US.
The boss of AstraZeneca recently defended his £18.5bn pay package, claiming that London would suffer in the talent war with New York in the absence of such compensation.
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