Investment bank set to pay top UK traders up to 25 times their base salary.
Goldman Sachs has eliminated the bonus cap for its UK bankers, a change that will enable top traders and dealmakers to earn up to twenty-five times their base salary through performance-linked incentives.
The Wall Street giant announced that the reintroduction of multimillion-pound bonuses was aimed at better cost management and rewarding performance. This move is intended to enhance the attractiveness of the UK for leading banking professionals.
This development follows the UK government’s decision last year to discard EU regulations that previously capped bonuses at double the base salary, as part of efforts to boost the City of London post-Brexit.
Goldman is the first major bank to amend its bonus policies following this regulatory change, with HSBC also considering a similar adjustment. Other investment banks are in discussions about such changes, and it is anticipated that many will follow Goldman’s example to prevent losing top talent to competitors.
Goldman employs approximately 6,000 bankers in its London office. Notable beneficiaries of this policy change are likely to include Mark Sorrell, who co-leads the mergers and acquisitions team and is the son of advertising magnate Sir Martin Sorrell. Sorrell has played a key role in defending Royal Mail and Anglo-American from takeover bids.
Anthony Gutman and Gonzalo Garcia, the co-heads of investment banking at Goldman, are also expected to gain from the removal of the bonus cap.
Adopting a bonus structure similar to that of New York could lead to significant rewards. For example, Ed Emerson, a British-born trader, reportedly earned around $100 million over three years while heading Goldman Sachs’s commodities division in New York before his departure from the firm last year.
A Goldman spokesperson emphasized that this strategy allows the bank to better control fixed costs over time and reward performance, aligning the UK more closely with other major global financial hubs and making it a more appealing location for financial talent.
The issue of executive compensation in the UK is part of a broader debate, with some executives citing lower salaries compared to the US as a contributing factor to the decline of the London Stock Market.
Harvey Knight, a partner at the City law firm Withers who leads its financial services regulatory team, commented, “This is a significant boost to the international appeal of London as a hub where senior executives can thrive.”
UK Finance, a banking industry trade association, remarked, “The ability to make adjustments following the removal of the regulatory bonus cap aids in enhancing the global competitiveness of the UK financial services sector.”
The EU introduced the bonus cap in 2014 as a measure to address the excessive bonuses in banking following the financial crisis.
In 2013, the year before the cap was implemented, Rich Ricci, the head of Barclays Investment Bank, received £18m in bonus shares. That same year, Barclays awarded over £1m in combined salaries and bonuses to more than 400 bankers, including five who earned over £5m each.
Instead of reducing bonuses, the cap led to increased base salaries as banks adjusted pay structures to remain competitive globally for talent. Andrew Bailey, the Governor of the Bank of England, has previously criticized the policy as “misguided.”
Bankers often prefer a higher fixed salary rather than relying on variable bonuses, as it provides stability for regular expenses like mortgage payments and school fees.
Canice Hogan, CEO of the executive recruitment firm Shadowhound, remarked, “Bankers in London benefit from higher fixed salaries compared to those in New York, which offers significant advantages by reducing their financial risks and increasing the risks for the banks.”
However, this policy was not well-received by the banks themselves, as it limited their ability to reduce pay during economic downturns, which would typically see employees receive zero bonuses, often referred to as “doughnut” bonuses.
Goldman Sachs announced on Thursday that it would be reducing base salaries while increasing the portion of compensation that is performance-based. This change will start being implemented from July 1, as communicated by Richard Gnodde, head of Goldman Sachs International, in an update to employees.
The Telegraph reported dissatisfaction among some top bankers regarding the reduction in their base pay.
Mr. Hogan commented, “The first bank to announce a 25% reduction in all banker salaries will be making a bold statement. This is likely to lead to conflicts and high turnover.”
Following Goldman’s announcement, other investment banks are reevaluating their bonus policies, with one insider noting the need to accelerate their decisions. Goldman’s bold move to set a cap on bonuses at 25 times the base salary was described as “punchy,” prompting competitors to possibly match these rewards to remain competitive.
HSBC is anticipated to eliminate its bonus cap later this week, with CEO Noel Quinn describing the change as an “opportunity” to achieve a better balance between salaries and bonuses.
Meanwhile, Barclays has chosen to maintain the bonus cap.
