The cap on bankers' bonuses is to be lifted. The Financial Conduct Authority and the Prudential Regulation Authority have announced that the cap will be axed with effect from today, 31 October, meaning the rules inherited from the EU that limit bonus payments to twice a banker's salary will be removed. The announcement follows a period of consultation conducted with various stakeholders and will apply to the current and future financial years.
This goes back to last year and a policy change that was first announced by former chancellor Kwasi Kwarteng in the ill-fated mini-budget during the Liz Truss premiership and it was one of the few announcements to be retained when Chancellor Jeremy Hunt became Chancellor. City firms complained that the cap was a barrier to recruiting and retaining quality workers, and London was losing out on talented staff as a result. The current government now agrees the cap should be lifted.
A reminder. The cap imposes limits on the ratio between fixed remuneration elements such as salary and variable components such as bonuses. This has meant that banks have resorted to increasing base salaries as they could not adjust bonuses based on senior executives’ performance. City firms have long argued that removing the cap will allow firms the freedom to restructure their pay over time and align remuneration with prudent risk-taking as well as increase labour mobility. They also point out that a bonus cap is not routinely imposed in other major banking centres outside the EU.
On Wednesday last week, when the news broke, it was widely reported in the media including Radio 5’s Wake Up To Money programme morning and included an interview with our own Anne Sammon. It was at 5am so the chances are you missed it, so here is another chance to hear it. Also commenting is Laura Lambie, Senior Investment Director at Wealth Management firm Investec, so you’ll hear her too. The host putting the questions is presenter Will Bain:
Excerpt from BBC Radio 5’s ‘Wake Up To Money’ - Banks, Bonuses and Balance Sheets (25/10/23)
That was Anne Sammon being interviewed last week on Radio 5’s Wake Up To Money programme. If you’d like to listen to that programme in full you can – you can download it from the BBC’s website and we’ve put a link to it in the transcript of this programme for you.
LINKS
- Link to BBC Radio 5’s ‘Wake Up To Money’ - Banks, Bonuses and Balance Sheets
Anne Sammon speaks to BBC Radio 5’s ‘Wake Up To Money’ programme about the lifting of the cap on bankers’ bonuses
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Transcript
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