Goldman Sachs scraps bonus cap for top London-based staff

Published

1 year ago

May 2, 2024

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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.

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

US-UK trade deal ‘done’, says Trump as he meets Starmer at G7

Published

2 hours ago

June 17, 2025

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US-UK trade deal 'done', says Trump as he meets Starmer at G7

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.”

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”.

What exactly does trade deal being ‘done’ mean?

The government says the US “has committed” to removing tariffs (taxes on imported goods) on UK aerospace goods, such as engines and aircraft parts, which currently stand at 10%.

That is “expected to come into force by the end of the month”.

Tariffs on car imports will drop from 27.5% to 10%, the government says, which “saves car manufacturers hundreds of millions a year, and protects tens of thousands of jobs”.

The White House says there will be a quota of 100,000 cars eligible for import at that level each year.

But on steel, the story is a little more complicated.

The UK is the only country exempted from the global 50% tariff rate on steel – which means the UK rate remains at the original level of 25%.

That tariff was expected to be lifted entirely, but the government now says it will “continue to go further and make progress towards 0% tariffs on core steel products as agreed”.

The White House says the US will “promptly construct a quota at most-favoured-nation rates for steel and aluminium articles”.

Other key parts of the deal include import and export quotas for beef – and the government is keen to emphasise that “any US imports will need to meet UK food safety standards”.

There is no change to tariffs on pharmaceuticals for the moment, and the government says “work will continue to protect industry from any further tariffs imposed”.

The White House says they “committed to negotiate significantly preferential treatment outcomes”.

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.

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”.

Business

Poundland to stop paying rent at hundreds of stores in rescue deal

Published

17 hours ago

June 16, 2025

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Poundland to stop paying rent at hundreds of stores in rescue deal

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.

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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Israel-Iran conflict poses new cost of living threat – here’s why

Published

23 hours ago

June 16, 2025

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Israel-Iran conflict poses new cost of living threat - here's why

The UK’s cost of living crisis hangover is facing fresh pressure from the Israel-Iran conflict and growing tensions across the Middle East.

Whenever the region, particularly a major oil-producing country, is embroiled in some kind of fracas, the potential consequences are first seen in global oil prices.

The Middle East accounts for a third of world output.

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Iran’s share of the total is only about 3%, but it is the second-largest supplier of natural gas.

Add to that its control of the key Strait of Hormuz shipping route, and you can understand why any military action involving Iran has huge implications for the global economy at a time when a US-inspired global trade war is already playing out.

What’s happened to oil prices?

Global oil prices jumped by up to 13% on Friday as the Israel-Iran conflict ramped up.

It was the biggest one-day leap seen since Russia invaded Ukraine in February 2022, which gave birth to the energy-driven cost-of-living crisis.

From lows of $64 (£47) a barrel for Brent crude, the international benchmark, earlier this month, the cost is currently 15% higher.

Iran ships all its oil to China because of Western sanctions, so the world’s second-largest economy would have the most to lose in the event of disruption.

Should that happen, China would need to replace that oil by buying elsewhere on the international market, threatening higher prices.

How are natural gas prices holding up?

UK day-ahead prices are 15% up over the past week alone.

Europe is more dependent on Middle East liquefied natural gas (LNG) these days because of sanctions against Russia.

The UK is particularly exposed due to the fact that we have low storage capacity and rely so much on gas-fired power to keep the lights on and for heating.

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The day-ahead price, measured in pence per therm (I won’t go into that), is at 93p on Monday.

It sounds rather meaningless until you compare it with the price seen less than a week ago – 81p.

The higher sum was last seen over the winter – when demand is at its strongest.

What are the risks to these prices?

Market experts say Brent crude would easily exceed $100 (£74) a barrel in the event of any Iranian threats to supplies through the Strait of Hormuz – the 30-mile wide shipping lane controlled by both Iran and Oman.

While Iran has a history of disrupting trade, analysts believe it will not want to risk its oil and gas income through any blockade.

What do these price increases mean for the UK?

There are implications for the whole economy at a time when the chancellor can least afford it, as she bets big on public sector-led growth for the economy.

We can expect higher oil, gas and fuel costs to be passed on down supply chains – from the refinery and factory – to the end user, consumers. It could affect anything from foodstuffs to even fake tan.

Increases at the pumps are usually the first to appear – probably within the next 10 days. Prices are always quick to rise and slow to reflect easing wholesale costs.

Energy bills will also take in the gas spike, particularly if the wholesale price rises are sustained.

The energy price cap from September – and new fixed-term price deals – will first reflect these increases.

How does this all play out in the coming months?

So much depends on events ahead.

But energy price rises are an inflation risk and a potential threat to future interest rate cuts.

While LSEG data shows financial markets continuing to expect a further two interest rate cuts by the Bank of England this year, the rate-setting committee will be reluctant to cut if the pace of price growth is led higher than had been expected.

At a time when employers are grappling with higher taxes and minimum pay thresholds, and consumers a surge in bills following the ‘awful April’ hikes to council tax, water and other essentials, a fresh energy-linked inflation spike is the last thing anyone needs.