Wall Street’s biggest bank is raising Brussels’ bonus cap for its London-based employees, weeks after rival Goldman Sachs fired the starting gun in a post-Brexit era in industry wages.
Sky News can reveal that JP Morgan Chase was notifying employees on Wednesday that it would preserve some elements of pay packages introduced after the European Union’s variable pay cap came into force in 2014.
The system prevents material risk takers (MRT) working in EU lender operations from earning more than double their fixed salary in variable remuneration.
Sources said JP Morgan, which employs 22,000 people in the UK, including around 14,000 in London, has decided to preserve a significant proportion of the fixed pay allowances used to calculate eligible employees’ maximum bonuses.
The US-based banking giant has also decided to increase its maximum bonus limit from twice the fixed payout to a multiple of 10.
This would mean that a senior JP Morgan banker or trader in Britain earning £2m in fixed annual remuneration would, from this year, be eligible for a bonus of up to £20m, rather than £4m. under EU rules.
One source said widespread maintenance of fixed pay levels was desirable, even for senior staff focused on managing monthly household expenses such as mortgages.
Responding to a query from Sky News, a JP Morgan spokesperson said: “We believe we have developed one of the most attractive and balanced salary structures in the industry. Fixed salaries will remain very competitive and we will have ample scope to reward top performers appropriately. “
Sources close to the bank said its analysis suggested that the removal of the EU bonus cap was unlikely to have a material impact on total annual remuneration levels during the current financial year.
“Bonuses will continue to be discretionary and driven by year-over-year performance,” a source said on Wednesday.
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The new structure is considered flexible enough to adjust fixed salary levels if the regulatory landscape changes further.
Sky News revealed details of Goldman Sachs plans last monthwith the bank opting to increase its limit from 2:1 to 25:1.
However, under Goldman’s revised structure, its fixed compensation allowances are largely being eliminated, meaning that bonuses will invariably be calculated from a lower base than JP Morgan’s.
The decision by Wall Street’s two biggest investment banks to recalibrate how they approach the pay of their top UK-based employees is expected to spark an arms race between the rivals as they seek to remain competitive.
A JP Morgan source said the bank believes its revamped pay structure would be attractive both to bankers working for rivals and those it wants to attract to Britain from outside the country.
At Goldman, the firm’s head outside the U.S. said the cap on bonuses prevented it from adopting a consistent approach to pay.
Banks have argued against capping bonuses for years, saying it does nothing to reduce risk-taking behavior and in many cases does the opposite.
Among those who publicly opposed was Andrew Bailey, the bank of england governor, who said in 2014 that it was “the wrong policy [and] the debate around this is misguided.”
Given that the bonus cap does not impose a limit on overall compensation, senior industry figures warned that it had placed upward pressure on salaries and allowances not linked to long-term performance, and that they could not be reduced or recovered if the failure or previous misconduct had occurred. subsequently emerged.
During his unhappy stint as chancellor in Liz Truss’s administration, Kwasi Kwarteng decided to eliminate the EU bonus limitsaying it would increase the international competitiveness of Britain’s financial services sector.
UK regulators agreed that removing the cap would help financial stability by allowing companies to reduce wages more quickly during crises or in scenarios where they need to conserve capital.
Bank chiefs including Deutsche Bank and Santander also criticized the limit, while Barclays and HSBC obtained shareholder approval to remove the two-to-one payment.
This story originally appeared on News.sky.com read the full story
