Barclays has announced as the first British bank to abolish the bonus cap introduced by the EU. This follows the decision by the United Kingdom to remove the limits last year after Brexit.
The step comes after the British branches of JPMorgan and Goldman Sachs have taken similar measures to increase their employees' bonuses. Morgan Stanley has also informed the British regulators that it plans to adjust its bonus structure.
According to an internal memo obtained by the Financial Times, Barclays will adopt JPMorgan's model, which allows bonuses for so-called "material risk takers," i.e., employees in the highest risk positions, to be set at up to ten times their base salary, while the base salary remains unchanged.
Previously, bonus payments were limited to twice the base salary – a regulation introduced across the EU in 2014 in response to the global financial crisis. However, as part of a post-Brexit initiative to strengthen the City of London, the UK lifted this cap last year.
It is expected that most US and British banks operating in the UK will change their compensation policies, which could affect the competitive situation in recruiting top bankers in London.
This decision allows us to be more flexible with a small and defined group of colleagues and to differentiate individual bonuses, so that Barclays can continue to compete effectively for the best talent worldwide," the bank explained in a statement.
Goldman Sachs has taken a different approach by cutting base salaries but increasing the bonus ratio by 25 times.
The change in the remuneration structure at Barclays affects approximately 1,600 of the group's "material risk takers", including bankers outside the UK, but not in Ireland or Monaco, as they are still subject to EU limits.
The leadership of some European banks has already complained that they continue to be restricted by EU regulations that cap bonuses at twice the base salary. They argue that the change in British rules makes it harder for them to compete for talent.
Since the introduction of the cap in the EU, base salaries have risen significantly as bankers insisted that their total compensation package remains the same. Critics of the cap's removal thus question whether this measure will actually have a substantial impact on wage levels.
The shareholders of Barclays approved a corresponding motion at the annual general meeting in May, which allows for greater flexibility in setting bonuses and recognizes the abolition of the UK cap.
At the individual level, total compensation will continue to be performance-based and market-oriented," Barclays said in the statement. "In general, the revised bonus cap should not change colleagues' expectations regarding total compensation.
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