Goldman Sachs scraps bonus cap for UK bankers, enabling potential 25x salary payouts
Goldman Sachs has announced the removal of a bonus cap for hundreds of its top UK bankers, potentially allowing star performers to earn bonuses up to 25 times their annual salary. This move aligns with the firm's global compensation approach and follows the UK's formal abolishment of EU rules restricting bonuses to twice an individual's base salary.
Richard Gnodde, CEO of Goldman Sachs International, explained that the change promotes consistency across the firm's international workforce and provides greater flexibility in compensation practices. The new policy allows for a higher proportion of discretionary compensation based on performance, with the possibility of deferral and clawback.
This change affects hundreds of Goldman's 6,000 UK staff classified as "material risk takers," enabling them to earn bonuses exceeding their salaries by up to 25 times. Gnodde emphasized that this aligns UK material risk takers' compensation with the firm's global principles, favoring lower fixed pay but a higher share of discretionary compensation, in line with regulatory objectives.
However, this modification does 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 formalized 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 centers.