Goldman Sachs has become the first investment bank to scrap its cap on bankers’ bonuses in the UK, following alterations to the country’s laws introduced last year. The bank cited the move as providing “greater flexibility” and aligning more closely with practices in major financial hubs like Singapore and New York.
The cap on bonuses, initially imposed by the EU in 2014, limited bonuses to twice the amount of basic pay. However, critics argued that this regulation led to banks boosting base salaries, making it challenging to adjust compensation for poor performance or misconduct.
The Financial Conduct Authority (FCA) welcomed the removal of the bonus cap, believing it would address these unintended consequences. The decision to lift the cap was first announced by Kwasi Kwarteng during his tenure as chancellor in 2022, with the aim of bolstering London’s competitiveness as a financial center.
Goldman Sachs explained that the change would offer more flexibility in managing fixed costs and incentivizing performance. It also emphasized the importance of aligning UK practices with those of other global financial centers to attract and retain talent.
Several other banks are reportedly reassessing their pay policies in light of these changes, although the move has drawn criticism from some quarters. Paul Nowak, the general secretary of the Trades Union Congress, described it as an “insult to working people,” particularly amid widespread economic challenges. Nonetheless, the shift may not find universal support among bankers, as some prefer a higher proportion of their income to be guaranteed through basic pay rather than performance-based bonuses.
