Goldman Sachs is set to remove its bonus cap for London-based staff, allowing some of its workers to once again pick up multimillion pound payouts.
Abolishing the existing pay ratio will represent a break with EU rules and will take advantage of the UK government’s abolition of bonus caps.
Richard Gnodde, chief executive of Goldman Sachs International, told staff today that the firm had decided to bring its remuneration policy in the UK in line with its operations elsewhere in the world.
“We are a global firm and to the extent possible we adopt a consistent global approach across everything we do,” he told them, in a message also relayed to Sky News.
Gnodde added: “The bonus cap rules were an important factor preventing us from being consistent in the area of compensation.”
He said removing the cap would mean lower fixed pay, “but a higher proportion of discretionary compensation”.
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Several hundred UK-based Goldman staff are thought to now be eligible for variable pay worth up to 25 times their base salaries.
Allowances which were introduced to help those employees deal with the cap will begin to be reduced from 1 July, Gnodde said.
Goldman is among the first major investment banks to pursue a revised approach to remuneration in the wake of the cap’s abolition by UK regulators last October. Under it, firms were prohibited from paying their material risk-takers – or most senior staff – more than twice their fixed pay in bonuses.
UK regulators say that scrapping the cap will aid financial stability by enabling firms to reduce pay faster during downturns or in scenarios where they needed to conserve capital.
Gnodde said at the time that removing the cap would make London “a more attractive place for sure”.
Other financial giants such as Deutsche Bank and Santander have also criticised the cap while HSBC is expected to win shareholder approval to remove the two-to-one pay ratio tomorrow (3 May).
A Goldman Sachs spokesperson told Sky News: “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.”
Adrian Crawford, employment partner at Kingsley Napley, said he did not see the abolition of the cap leading to “an 80s style investment banking pay bonanza.”
He added: “Remuneration codes imposed by the regulators now require banks to take account of a number of factors, including the management of risk, in setting their pay policy. In addition, it should be noted malus and clawback rules now apply to variable pay and these militate against risky behaviour.
“My expectation is that a small number of very high performers will be given bonuses which exceed the cap but that this will be very much the exception. It is also likely that, over time, some banks will seek to differentiate themselves by explicitly abandoning both the bonus cap and fixed role-based allowances, both to give themselves more flexibility by reducing fixed costs and increasing variable remuneration for top performers, and to differentiate themselves as promoting a culture in which high performance is rewarded.”
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Crawford said he doubted that Goldman’s move would kick start a “gold rush of uncapped bonuses for all staff”. Instead, he predicted that banks would change their remuneration structures over time and move towards using a range of different remuneration models for different types of employees and to reflect their differing cultures.
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