Goldman Sachs has recently announced the removal of the bonus cap for its top UK bankers, a move that permits star performers to earn bonuses up to 25 times their annual salary. This change, disclosed by Goldman Sachs International CEO Richard Gnodde in a video message to staff, is in line with the firm’s global compensation philosophy and follows the formal elimination of EU regulations that previously limited bonuses to two times an individual’s base salary.
Gnodde explained that the elimination of the bonus cap in the UK is intended to create consistency across Goldman Sachs' international team and offer more flexibility in compensation practices. This adjustment will allow a higher percentage of discretionary compensation based on performance, as well as enable the deferral and potential clawback of bonuses, impacting hundreds of the firm's 6,000 UK staff classified as material risk takers.
This decision will align UK material risk takers’ compensation more closely with Goldman Sachs' global principles, emphasizing a lower fixed pay and a higher portion of discretionary compensation, which is in line with regulatory objectives regarding prudential standards. It's important to note that this change will not extend to the firm's EU-based bankers due to the absence of restrictions on maximum payouts from American regulators.
The bonus cap removal, originally implemented after the 2007-08 financial crisis, aimed to address concerns related to a bonus culture that prioritized short-term profit over long-term stability. While facing opposition from some UK politicians and the Bank of England, the decision to abolish the cap gained traction post-Brexit, with regulators finalizing the change in November last year, marking a significant shift in UK financial compensation practices. The move is anticipated to enhance flexibility in managing fixed costs and bolster the UK’s attractiveness as a competitive hub for talented professionals, bringing it more in line with compensation norms in other major global financial centers.