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.
The UK-US trade deal has been signed and is “done”, US President Donald Trump has said as he met Sir Keir Starmer at the G7 summit.
The US president told reporters: “We signed it, and it’s done. It’s a fair deal for both. It’ll produce a lot of jobs, a lot of income.”
As Mr Trump and his British counterpart exited a mountain lodge in the Canadian Rockies where the summit is being held, the US president held up a physical copy of the trade agreement to show reporters.
Several leaves of paper fell from the binding, and Mr Starmer quickly bent down to pick them up, saying: “A very important document.”
President Donald Trump drops papers as he meets with Britain’s Prime Minister Keir Starmer in Kananaskis, Canada. Pic: AP
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Sir Keir Starmer hastily collects the signed executive order documents from the ground and hands them back to the US president.
Sir Keir said the document “implements” the deal to cut tariffs on cars and aerospace, adding: “So this is a very good day for both of our countries – a real sign of strength.”
Mr Trump added that the UK was “very well protected” against any future tariffs, saying: “You know why? Because I like them”.
However, he did not say whether levies on British steel exports to the US would be set to 0%, saying “we’re gonna let you have that information in a little while”.
Sir Keir Starmer picks up paper from the UK-US trade deal after Donald Trump dropped it at the G7 summit. Pic: Reuters
Mr Trump also praised Sir Keir as a “great” prime minister, adding: “We’ve been talking about this deal for six years, and he’s done what they haven’t been able to do.”
He added: “We’re very longtime partners and allies and friends and we’ve become friends in a short period of time.
“He’s slightly more liberal than me to put it mildly… but we get along.”
Sir Keir added that “we make it work”.
The US president appeared to mistakenly refer to a “trade agreement with the European Union” at one point as he stood alongside the British prime minister.
Mr Trump announced his “Liberation Day” tariffs on countries in April. At the time, he announced 10% “reciprocal” rates on all UK exports – as well as separately announced 25% levies on cars and steel.
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In a joint televised phone call in May, Sir Keir and Mr Trump announced the UK and US had agreed on a trade deal – but added the details were being finalised.
Ahead of the G7 summit, the prime minister said he would meet Mr Trump for “one-on-one” talks, and added the agreement “really matters for the vital sectors that are safeguarded under our deal, and we’ve got to implement that”.
Poundland will halt rent payments at hundreds of its shops if a restructuring of the ailing discount retailer is approved by creditors later this summer.
Sky News has learnt that Poundland’s new owner, the investment firm Gordon Brothers, is proposing to halt all rent payments at so-called Category C shops across the country.
According to a letter sent to creditors in the last few days, roughly 250 shops have been classed as Category C sites, with rent payments “reduced to nil”.
Poundland will have the right to terminate leases with 30 days’ notice at roughly 70 of these loss-making stores – classed as C2 – after the restructuring plan is approved, and with 60 days’ notice at about 180 more C2 sites.
The plan also raises the prospect of landlords activating break clauses in their contracts at the earliest possible opportunity if they can secure alternative retail tenants.
In addition to the zero-rent proposal, hundreds of Poundland’s stores would see rent payments reduced by between 15% and 75% if the restructuring plan is approved.
The document leaves open the question of how many shops will ultimately close under its new owners.
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A convening hearing has been scheduled for next month, while a sanction hearing, at which creditors will vote on the plan, is due to occur on or around August 26, according to one source.
The discounter was sold last week for a nominal sum to Gordon Brothers, the former owner of Laura Ashley, amid mounting losses suffered by its Warsaw-listed owner, Pepco Group.
Poundland declined to comment.
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