Barclays becomes first UK bank to scrap EU bonus cap – HOY Newspaper

Unlock Editor’s Digestion for free

Roula Khalaf, FT Editor, selects her favourite stories in this weekly newsletter.

Barclays has become the first British bank to tell staff it will scrap an EU-imposed bonus cap, following the UK’s post-Brexit decision to scrap the limits last year.

The lender follows the UK operations of JPMorgan and Goldman Sachs in telling staff it will increase bonuses. Morgan Stanley’s UK business has told regulators it intends to do so.

Barclays will use the model used by JPMorgan to set bonuses for its most senior staff, so-called material risk takers, at up to 10 times their fixed salary, while keeping base pay the same, according to an internal memo seen by the Financial Times.

Bonuses had previously been capped at twice base pay, a limit that was introduced in 2014 across the EU in response to the global financial crisis. But the UK scrapped the cap last year as part of a post-Brexit push to boost the City of London.

Most US and UK banks operating in the UK are expected to change their remuneration policies, which will alter the dynamics of competition to recruit the best bankers in London.

“It will allow us greater flexibility to differentiate individual bonuses within a small, defined group of colleagues, enabling Barclays to continue to compete effectively to retain and attract the best talent globally,” the bank said in a statement.

Goldman has taken a different approach of reducing base pay but increasing the bonus ratio to 25 times.

The change to Barclays’ pay structure will affect around 1,600 of the group’s material risk takers, which includes bankers outside the UK but not in Ireland or Monaco as they fall under EU limits.

Leaders at some European banks have complained that they are still constrained by EU rules limiting bonuses to twice fixed salary. They have argued that the change in UK rules will make it harder for them to compete in hiring.

Since the cap was introduced in the EU, fixed pay has risen substantially as bankers have demanded their total package remain the same, leading critics of the cap’s removal to question whether it will have much impact on pay levels.

Shareholders approved a motion at Barclays’ annual meeting in May to allow greater flexibility in setting bonuses, in recognition of the removal of the UK cap.

“At the individual level, total compensation will continue to be performance-based and market-based,” the Barclays memo said.

“Generally, the revised bonus cap should not change colleagues’ expectations around total compensation.”