(Ian West/ PA)
(Picture: PA Archive)Bankers in London and New York are poised to suffer a sharp downturn in pay when their year-end bonuses are awarded in the coming weeks as a stock market downturn and a fallow deals and IPO market help dampen compensation packages on Wall Street and the Square Mile.
Average banker pay could fall by as much as 50% this year, according to pay estimates provided to Reuters by recruitment firm Sheffield Haworth, in a dramatic change in fortunes for city financiers who in 2021 had benefitted from some of the most generous pay packages in over a decade amid a stock market boom.
Goldman Sachs bankers may be among the hardest hit, with compensation falling as much as 45%, according to the estimates, while pay at Citi and Bank of America is set to fall 35% and 30% respectively.
The US-based Nasdaq Composite index has fallen by almost a third since the start of the year, while London-based IPOs have fallen by some 90% from £14.3 billion to £1 billion, according to data published by KPMG.
But City bankers may soon be able to receive unlimited bonuses after the Bank of England 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.
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.”
