Goldman Sachs scraps bonus cap for top London-based staff
Goldman Sachs is removing a cap on bonuses for London-based staff, paving the way for it to resume making multimillion pound payouts to its best-performing traders and dealmakers.
Sky News can exclusively reveal that the Wall Street banking giant notified its UK employees on Thursday that it had decided to abolish the existing pay ratio imposed under European Union rules and which the government recently decided to scrap.
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In a video message to staff, Richard Gnodde, chief executive of Goldman Sachs International, which comprises its operations outside the US, said it had decided to bring its remuneration policy in Britain in line with its operations elsewhere in the world.
“We are a global firm and to the extent possible we adopt a consistent global approach across everything we do,” Mr Gnodde said in the message, which has been relayed to Sky News.
“The bonus cap rules were an important factor preventing us from being consistent in the area of compensation.”
He added that the shift would “mean lower fixed pay, but a higher proportion of discretionary compensation”, adding that it “also reflects the prudential objective of our regulators”.
The removal of the cap means several hundred UK-based Goldman staff will now be eligible for variable pay worth up to 25 times their base salaries, according to insiders.
As a consequence, allowances which were introduced to help those employees deal with the cap will begin to be reduced from 1 July, Mr Gnodde told employees.
People close to the bank insisted, however, that the revised approach would not necessarily mean senior employees being paid more, but that they could now be appropriately rewarded for exceptional performance and that the move would allow Goldman more flexibility to manage its fixed cost base.
Goldman is among the first major investment banks to signal its intention to pursue a revised approach to remuneration in the wake of the cap’s abolition by UK regulators last October.
Under it, firms were prohibited from paying their material risk-takers – or most senior staff – more than twice their fixed pay in bonuses.
Some banks used the mechanism of a fixed-pay allowance in addition to employees’ base salaries to give them more flexibility to pay larger bonuses.
While Goldman’s move may draw controversy, the EU bonus cap drew criticism from many influential figures in finance over many years, including from Andrew Bailey, the Bank of England governor, who said in 2014 that it was “the wrong policy [and] the debate around it is misguided”.
During his ill-fated stint as chancellor, Kwasi Kwarteng moved to scrap the EU bonus cap, saying it would boost the international competitiveness of Britain’s financial services sector.
UK regulators agreed that scrapping the cap would aid financial stability by enabling firms to reduce pay faster during downturns or in scenarios where they needed to conserve capital.
Mr Gnodde has publicly endorsed the removal of the cap, saying in 2020 that doing so would “put the UK on the same footing, aside from the EU, with every other major financial centre”.
“Removing that ratio makes London a more attractive place for sure,” he said at the time.
“If I move a senior person between New York and London I am driving up the fixed cost of our operations. If that rule doesn’t exist, I don’t have to think about that.”
While Goldman is among the first to notify its employees about its amended stance on bonuses for UK staff, many of its peers, including bosses at lenders such as Deutsche Bank and Santander have also criticised the cap.
At its annual meeting on Friday, HSBC is expected to win shareholder approval to remove the two-to-one pay ratio.
Other firms are also understood to be reviewing their UK compensation practices in light of the cap’s abolition.
Many industry executives have argued that the cap actually encouraged greater risk-taking because it put smaller sums of money at risk for senior bankers.
Insiders also pointed out that because the bonus cap does not impose a limit on overall remuneration, it had placed upward pressure on salaries and allowances not linked to longer-term performance, and which could not be reduced or clawed back if failure or previous misconduct had subsequently emerged.
Responding to an enquiry from Sky News, a spokesman for Goldman said: “This approach gives us greater flexibility to manage fixed costs through the cycle and pay for performance.
“It brings the UK closer to the practice in other global financial centres, to support the UK as an attractive venue for talent.”
Goldman has often been in the vanguard of responding to changing public policy in relation to bankers’ pay.
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In 2010, it imposed a £1m pay ceiling on its UK staff after the then Labour government introduced a one-off tax on bank bonuses in response to the public outcry over the financial crisis.
Goldman’s decision to remove the two-to-one ratio comes as UK regulators also consult on the length of deferral periods for variable pay for senior bankers.
Mr Gnodde told staff on Thursday that Goldman would continue to lobby for closer global alignment on deferral periods, which would mean reducing the current UK duration from seven years.
Business
Ex-Post Office head of IT says Paula Vennells ‘hoped to avoid’ inquiry – and reveals she blocked her number
A former Post Office executive has said she was forced to block ex-boss Paula Vennells’ phone number after the ex-CEO called multiple times asking for help to avoid an independent inquiry into the Horizon IT scandal.
Lesley Sewell, previously the company’s head of IT, told the Post Office inquiry on Thursday that former CEO Ms Vennells had reached out to her four times between 2020 and 2021.
Ms Sewell said that she blocked Ms Vennells’ number due to discomfort with the contact.
In her witness statement to the probe, Ms Sewell said that one of Ms Vennells’ emails referenced the need to fill in memory gaps regarding Horizon and “Project Sparrow”, a committee addressing issues with forensic accountants who identified flaws in the accounting system.
“Paula contacted me on four occasions in total. I recall blocking her number after the last call as I did not feel comfortable with her contacting me,” Ms Sewell said.
“I had not spoken to Paula since I had left POL [Post Office Limited] in 2015.”
Lesley Sewell giving evidence to the Post Office inquiry. Pic: PA
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According to Ms Sewell’s testimony, former chief executive Ms Vennells said that she had “been asked at short notice” to appear before a parliamentary select committee on “all things Horizon/Sparrow and need to plug some memory gaps”.
Ms Sewell says Ms Vennells added: “My hope is this might help avoid an independent inquiry but to do so, I need to be well prepared.”
Ms Sewell, who struggled to contain her emotions and broke down in tears while giving her oath at the start of her inquiry evidence, was offered support and breaks as needed by chairman Sir Wyn Williams.
Sir Wyn told the former executive: “Ms Sewell, I appreciate this may be upsetting for you, Ms Price will ask you a number of questions in a proper and sensible manner, but if at any time you feel you need a break, just let me know, all right?”
Lesley Sewell taking the oath at the Post Office inquiry. Pic: PA
The Post Office has faced significant scrutiny following the ITV drama Mr Bates Vs The Post Office which highlighted the Horizon IT scandal.
The faulty system led to the prosecution of more than 700 sub-postmasters between 1999 and 2015, with many still awaiting full compensation despite government announcements regarding payouts for those with quashed convictions.
London City Airport will on Thursday name its first permanent female chief executive as it targets approval of an expansion plan that would create nearly 1,500 jobs.
Sky News understands that the Docklands airport has told staff that Alison FitzGerald, who has been co-CEO since January alongside finance chief Wilma Allan, has landed the role.
A woman wearing a face mask walks by London City Airport, which suspended its operations during the pandemic
She replaces Robert Sinclair, who left in January after six years to become boss of the High Speed 1 rail link.
The airport is owned by a consortium of Canadian pension funds and Kuwait’s sovereign wealth fund, which have backed a plan to increase its annual passenger traffic from about 6.5m to 9m.
It is appealing against Newham Council’s rejection of a planning application that would see it extend operating hours at the site, which is popular with City commuters.
The airport’s proposals include no increase in the annual number of flights and, in what it claims is a first for a UK airport, a commitment that only cleaner, quieter, new generation aircraft will be allowed to fly in any extended periods.
The runway at London City Airport
The appeal is being reviewed by the Independent Planning Inspector.
Its change of leadership makes London City the second of the capital’s airports to name a new CEO in quick succession, following the arrival at Heathrow of Thomas Woldbye last year.
“London City delivers one of the best passenger experiences in the UK and I’m committed to building on this success even further,” Ms FitzGerald said.
Representatives of Thames Water’s multinational syndicate of shareholders are poised to quit as directors of its corporate entities after refusing to inject the billions of pounds of funding required to bail it out.
Sky News has learnt that a number of board members at companies connected to Kemble Water Finance, Thames’s parent, are expected to resign in the coming days.
City sources described the move as “the logical next step” after the owners of Britain’s biggest water utility said they would not commit more than £3bn to help upgrade its ageing infrastructure and shore up its debt-laden balance sheet.
A default on part of Thames Water‘s holding company debts last month has raised the prospect that the company is heading towards special administration, a form of insolvency that would effectively leave the government liable for managing a utility firm which serves nearly a quarter of Britain’s population.
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Thames Water under threat
Thames Water is owned by a group of sovereign wealth funds and pension funds from countries including Abu Dhabi, Australia, Britain, Canada and China.
A number of the investors are represented on boards which sit at various points in the group’s labyrinthine capital structure.
It was unclear on Wednesday whether Michael McNicholas, a representative of the giant Canadian pension fund Omers and who sits on the board of Thames Water Utilities Limited, was among those in the process of stepping down.
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Along with the rest of the privately owned water industry, Thames Water faces a crucial moment next month when Ofwat, the industry regulator, publishes its draft determination on companies’ five-year business plans.
The draft rulings will be subject to negotiation before final versions are published in December.
Thames Water and a spokesman for Kemble declined to comment.
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