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Goldman Sachs has announced the elimination of a bonus cap for hundreds of its top UK bankers, enabling star performers to potentially earn bonuses up to 25 times their annual salary.
Richard Gnodde, the CEO of Goldman Sachs International, revealed this change in a video message to staff, stating that it aligns with the firm’s global approach to compensation. This move follows UK regulators’ decision to formally abolish EU rules that previously restricted bonuses to twice an individual’s base salary, with other major UK lenders, including HSBC, Barclays, and NatWest, set to follow suit.
Gnodde highlighted that ending the UK cap would promote consistency across Goldman’s international workforce and provide greater flexibility in compensation practices. The adjustment allows for a higher proportion of discretionary compensation, dependent on performance, and facilitates the deferral and potential clawback of bonuses.
The revised policy will affect hundreds of Goldman’s 6,000 UK staff, known as material risk takers, enabling them to earn bonuses up to 25 times their salaries.
Gnodde emphasised that the changes align UK material risk takers’ compensation more closely with the firm’s global principles, favouring lower fixed pay but a higher share of discretionary compensation, in line with prudential objectives set by regulators.
However, this modification will not extend to Goldman’s EU-based bankers, as American regulators do not impose restrictions on maximum payouts.
The bonus cap, initially introduced after the 2007-08 financial crisis, aimed to curb a bonus culture associated with short-term profit-seeking at the expense of long-term stability. While opposed by some UK politicians and the Bank of England, it faced challenges for potentially deterring skilled bankers and prompting their migration to other financial hubs.
The decision to scrap the cap gained momentum post-Brexit, with former Chancellor Kwasi Kwarteng announcing plans in September 2022. Regulators formalised the change in November last year, marking a significant shift in UK financial compensation practices.
Goldman Sachs stated that this approach enhances flexibility in managing fixed costs and reinforces the UK’s appeal as a competitive talent destination, bringing it closer to compensation practices in other global financial centres.
