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May 06, 2024
Goldman Sachs removes bankers’ bonus limits.
April 2024 -Goldman Sachs has made headlines by becoming the first investment bank to eliminate its cap on bankers’ bonuses, following recent adjustments to UK regulations. This move, the bank asserts, will afford “greater flexibility” and align more closely with practices observed in major financial hubs like Singapore and New York.
Previously, bonuses for bankers were restricted to twice their basic salary, a measure implemented by the EU in 2014 despite objections from the UK. The aim was to mitigate the sort of excessive risk-taking that precipitated the 2008 financial crisis. However, critics contended that this limitation could be circumvented by boosting base salaries, thereby complicating efforts to adjust compensation for poor performance or misconduct.
The Financial Conduct Authority, upon introducing the changes, anticipated that they would rectify these “unintended consequences.” The decision to remove the bonus cap was initially disclosed by Kwasi Kwarteng during his brief tenure as chancellor in 2022, with the intention of enhancing London’s competitiveness as a financial center.
Advocates for the banking sector argue that the bonus restriction hampers efforts to attract talent from the US and Asia to the UK. Goldman Sachs emphasized that this shift allows for better management of fixed costs throughout economic cycles and facilitates performance-based compensation, aligning the UK more closely with international financial norms.
Several other banks are reportedly reassessing their compensation policies in light of these regulatory changes. However, not everyone in the banking industry welcomes the removal of the bonus cap, as some individuals prefer a higher proportion of their income to be in the form of guaranteed basic pay rather than performance-dependent bonuses.
When the decision to eliminate the bonus cap was announced, Trades Union Congress general secretary Paul Nowak criticized it as an “insult to working people,” particularly amidst widespread economic challenges. The debate over how best to structure banker compensation continues, balancing concerns around risk-taking, talent retention, and fairness in remuneration.
