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Goldman Sachs has informed staff in its London office that it will remove caps on banker bonuses, becoming the first big bank to take advantage of controversial changes to UK pay rules.
The Wall Street lender told staff of the change in a video on Thursday in a move that is expected to be copied by rivals.
“This approach gives us greater flexibility to manage fixed costs through the cycle and pay for performance,” Goldman said in a statement. “It brings the UK closer to the practice in other global financial centres, to support the UK as an attractive venue for talent.”
Last October, the UK scrapped the cap on banker bonuses inherited from its period of EU membership. The decision was part of the UK government’s post-Brexit push to boost the City of London, although pay consultants have been sceptical that it will lead to a significant change in pay.
“We are a global firm and to the extent possible we adopt a consistent global approach across everything we do,” said Richard Gnodde, chief executive of Goldman Sachs’ international subsidiary, in remarks during a video message to staff, portions of which were seen by the Financial Times.
“The bonus cap rules were an important factor preventing us from being consistent in the area of compensation.”
The EU introduced the cap in 2014 following the global financial crisis. It limited bonuses to two times an employee’s base salary.
Critics of removing the cap argue that fixed pay has already increased over the past decade to compensate bankers for their smaller bonuses. Allowing bonuses to increase, they say, will lead to pay inflation.
But bank executives countered that bonuses would only rise over time, leading to incentives that are closer aligned to the bank’s performance.
Goldman’s decision, which was first reported by Sky News, is expected to lead to similar shifts by other global banks. Barclays has already said it is continuing to operate under the cap, but will “consider this further” for the next financial year.
Goldman had been one of the most aggressive lobbyists in trying to remove the bonus cap since Britain voted to leave the EU in 2016.
When the plan was first mooted by shortlived UK chancellor Kwasi Kwarteng in 2022, Gnodde told the FT that eliminating the cap would make “London a more attractive place for sure”.
He said that under the current system, “if I move a senior person between New York and London I am driving up the fixed cost of our operations”. He added: “If that rule doesn’t exist, I don’t have to think about that.”
Other Wall Street banks spoken to by the FT said they were expecting Goldman to be the first to formally scrap the cap and were planning to make similar moves later in the year.
At last year’s FT Global Banking Summit, the heads of several of Europe’s biggest banks — including Deutsche Bank and Santander — said the EU should consider removing the cap as it put them at a disadvantage when recruiting staff compared with their US and UK rivals.