Goldman Sachs has announced it will remove the bonus cap for hundreds of senior UK bankers, enabling star employees to receive bonuses of up to 25 times their annual salary.
Richard Gnaud, CEO of Goldman Sachs International, revealed the change in a video message to employees, noting that it is in line with the company's global approach to compensation. The move follows UK regulators' decision to formally scrap EU rules that previously restricted bonuses to twice an individual's basic salary, and other major UK lenders, including HSBC, Barclays and NatWest, are set to follow. Follow their example.
Gnodd stressed that ending the cap in the UK would enhance consistency across Goldman's international workforce and provide greater flexibility in compensation practices. The modification allows for a higher percentage of discretionary compensation, which is based on performance, and facilitates the deferral and potential clawback of bonuses.
The revised policy will affect hundreds of Goldman Sachs's 6,000 UK employees, known as financial risk takers, enabling them to receive bonuses of up to 25 times their salary.
Gnodd stressed that the changes align UK material risk takers' compensation more closely with the company's global principles, favoring lower fixed wages but a higher share of discretionary compensation, in line with prudential targets set by regulators.
However, this adjustment will not extend to Goldman Sachs' bankers in the EU, as US regulators do not impose limits on maximum payouts.
The bonus cap, initially introduced after the 2007-2008 financial crisis, was intended to limit a bonus culture associated with the pursuit of short-term profit at the expense of long-term stability. Despite opposition from some UK politicians and the Bank of England, it has faced challenges regarding the potential to deter skilled bankers from migrating to other financial centres.
The decision to scrap the cap gained momentum after Brexit, with former Chancellor Kwasi Kwarteng announcing plans in September 2022. Regulators formalized the change in November last year, marking a major shift in financial compensation practices in the UK.
Goldman Sachs said this approach enhances flexibility in managing fixed costs and enhances the UK's attractiveness as a competitive destination for talent, bringing it closer to compensation practices in other global financial centres.