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Barclays (LSE:BARC) has officially removed the cap on bankers' bonuses that was previously imposed by the EU. This change allows for bonuses up to ten times the bankers' salaries, as announced in an internal memo to staff. This move follows a decision by shareholders at Barclays' annual general meeting (AGM) four months ago to drop the previous restriction, which limited bonuses to twice the salary.
Industry-Wide Changes
Barclays is leading a trend among major UK banks, including Lloyds and HSBC, in lifting the bonus cap. This cap was one of the key measures introduced by the EU after the 2007-08 financial crisis to prevent risky behavior by aligning compensation more closely with long-term stability rather than short-term gains. The UK financial regulators lifted this restriction last year, and banks are now adapting their policies accordingly.
Impact on Compensation Structure
Despite the removal of the cap, Barclays has emphasized that individual compensation will remain tied to performance and market conditions. The company stated that the revised bonus cap should not alter expectations around total compensation but will provide more flexibility in rewarding individual performance. This adjustment is intended to help Barclays attract and retain talent in a competitive global market.
Historical Context of the Bonus Cap
The original bonus cap was introduced to curb the bonus culture that contributed to the financial crisis by incentivizing short-term profits at the expense of long-term stability. The goal was to reduce the risk of financial instability by decreasing the proportion of pay linked to performance. However, the cap faced opposition from UK politicians and regulators, who argued that it made it difficult to attract skilled bankers and pushed them towards financial hubs like New York, Singapore, and Zurich.
Political and Regulatory Responses
The push to remove the bonus cap began under the Liz Truss government in 2022, led by Kwasi Kwarteng. The measure was later approved by Chancellor Jeremy Hunt and UK regulators, including the Bank of England. This decision reflected a broader shift away from the restrictive measures of the past, though the Labour Party has indicated that it will not reverse the change.
Barclays’ Strategic Approach
According to a Barclays spokesperson, the new bonus structure will not change the company’s approach to setting its incentive pool, which remains based on overall group performance. Instead, it provides the bank with greater flexibility to differentiate bonuses for a small, defined group of employees, thereby enhancing its ability to compete globally for top talent.
