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"Banks spent millions implementing the bonus cap. They're not about to reverse it"

In these dark days for investment bank recruitment, when not much is occurring and the bedding down of Credit Suisse stragglers is the main event, there might be a glimmer of hope for London recruiters in 2024. - The bonus cap and its elimination. Many banks in London are now free to pay bigger bonuses and lower salaries for the first time in eight years. Does this mean they'll hire new senior people next year, simply in order to re-rate compensation away from high fixed costs and towards flexible bonuses instead?


Much as banks could, potentially, hire new managing directors on lower salaries, recruiters say it won't happen. At least not in 2024.

"Banks' HR teams put thousands of hours' work into standardising salaries for the bonus cap," says one headhunter who also works as a compensation consultant. "Millions of pounds have been spent on law firms to get these compensation structures in place. They're not going to just wipe the slate clean."

They don't have to. When the British Prudential Regulation Authority (PRA) released its statement on lifting the bonus cap last month, it said that banks "may, if they wish, still choose to wait until a later date" before availing themselves of the opportunity to cut fixed pay and hike bonuses. Getting rid of the bonus cap isn't mandatory. If they want, banks can keep fixed pay high and bonuses low forever. 

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They have reason to do this. Since the bonus cap was introduced in 2015, banks have implemented strict 'grid systems' for salaries in Europe. Pay has become much more structured as a result. Banks are acutely aware of and obsessively interested in where their people rank on the grids compared to rivals'. Reverting to a system of smaller salaries and wildly varying bonuses implies jettisoning standardized pay and reverting to a system where there's much greater variation in pay between individuals.

Recruiters say banks simply aren't ready for this and for the HR costs it will entail. At the very most, role related allowances for new hires might be scrapped but that for the most part pay will be structured the same. It will take a while for the removal of the bonus cap to have any impact. It doesn't help that most banks want a single pay strategy for all of Europe, and that if London diverges, it will imply an extra cost. 

It also doesn't help that even though the bonus cap is being scrapped, banks in London still won't be free to pay the kinds of multi-year guaranteed bonuses that were common in the days before salaries were hiked. When salaries and fixed pay are high, senior bankers and traders can move jobs comparatively risk-free in the knowledge that they'll get paid no matter what. When it's all about the variable bonus, people like to know that the bonus will be high at their new employer - preferably for at least two years. And yet, the PRA is sticking with the existing rules stipulating that guaranteed bonuses must be exceptional and limited to one year only. 

For the most part, then, 2024 is likely to be business as usual when it comes to London banking pay. In any case, the lifting of the bonus cap only applies to the small population of a few thousand 'material risk takers' at the top of each bank. For everyone else, plus ça change.

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Have a confidential story, tip, or comment you’d like to share? Contact: +44 7537 182250 (SMS, Whatsapp or voicemail). Telegram: @SarahButcher. Click here to fill in our anonymous form, or email Signal also available.

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AUTHORSarah Butcher Global Editor

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