(Kirsty O’Connor/PA)
(Picture: PA Wire)City bankers may soon be able to receive unlimited bonuses after the Bank of England today announced plans for a consultation on scrapping the so-called ‘bonus cap’.
The decision to scrap the cap, which sets limits on the ration between fixed and variable pay in financial services, was among the few policy moves that survived Kwasi Kwarteng’s disastrous ‘mini-Budget’ after much of it was axed by his replacement, Jeremy Hunt.
Under the current rules, which were introduced under EU legislation in 2016, city bankers may not receive a bonus greater than their salary, or not more than double their salary subject to shareholder approval.
In a statement, the Bank of England said: “The proposals to remove the current limits on the ratio between fixed and variable components of total remuneration aim to strengthen the effectiveness of the remuneration regime by increasing the proportion of compensation at risk that can be subject to the incentive setting tools within the remuneration framework – including deferral, payments in instruments, and risk adjustment.”
“Over time, the regulators consider that the proposed changes should also help remove unintended consequences that have arisen as a result of the bonus cap, namely growth in the proportion of the fixed component of total remuneration, which reduces firms’ ability to adjust costs to absorb losses in a downturn.”
The consultation, which runs until March 2023, is set to bring about changes to the rules on bank pay from the beginning of 2024.
Ieva Sakalauskaite and Qun Harris, from the Bank of England’s Prudential Policy Division, said: “There is broad consensus that bankers’ remuneration packages contributed to the Global Financial Crisis because they created a reward structure which encouraged excessive risk-taking: giving bankers a large share in upside rewards, but smaller and more limited exposure to the downside.
“We do not find evidence that the bonus cap significantly constrained [bankers’] total pay growth, but rather led to slower bonus and faster fixed pay growth.”
