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Barclays has become the first British bank to tell staff it will scrap the bonus cap imposed by the EU, following the UK’s post-Brexit decision to remove the limits last year.
The lender follows the UK operations of JPMorgan and Goldman Sachs in telling staff it will raise bonuses. Morgan Stanley’s UK business has told regulators it intends to do so.
Barclays will use the model employed by JPMorgan in setting bonuses for its most senior staff, so-called material risk takers, at up to 10 times their fixed pay, while keeping base pay the same, according to an internal memo seen by the Financial Times.
Bonuses had previously been capped at two-times base salary, a limit that was introduced in 2014 across the EU in response to the global financial crisis. But the UK removed the cap last year as part of a post-Brexit push to boost the City of London.
Most US and British banks operating in the UK are expected to change their pay policies, which will alter the competition dynamics for hiring top bankers in London.
“It will allow us greater flexibility to differentiate individual bonuses within a small and 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 cutting base pay but increasing the bonus ratio to 25 times.
The change to the Barclays pay structure will affect the group’s around 1,600 material risk takers, which includes bankers outside the UK but not in Ireland or Monaco as they are under the EU limits.
The heads of some European banks have complained that they are still held back by the EU rules limiting bonuses to two-times fixed pay. They have argued that the change in the UK rules will make it harder for them to compete on hiring.
Since the cap was introduced in the EU, fixed pay has risen substantially as bankers have demanded that their overall package remain the same, leading critics of removing the cap 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 acknowledgment of the removal of the UK’s cap.
“At an individual level, total compensation will continue to be performance-based and market-informed,” the Barclays memo said.
“Generally, the revised bonus cap should not change colleague expectations around total compensation.”