Barclays has become the first UK bank to formally lift the cap on bankers’ bonuses originally imposed by the EU, opening the door for staff to receive 10 times their salaries in payouts.
The announcement was made through an internal memo to staff on Thursday, four months after shareholders at Barclays’ AGM approved the move to drop the measure, which previously limited bonuses to two times bankers’ salaries.
All the major UK lenders, including Barclays, Lloyds and HSBC, are in the process of lifting the cap – one of the key reforms introduced by the EU following the 2007-08 financial crisis – after Britain’s financial regulators scrapped the restriction last year.
They had already put the change to shareholder votes at their AGMs in April and May, but have been deciding on the maximum ratios to offer staff. Barclays has followed the US bank JP Morgan by allowingup to 10 times salary.
However, Barclays said bankers should not raise their hopes. “At an individual level, total compensation will continue to be performance based and market informed,” the memo seen by the Guardian said.
“Generally, the revised bonus cap should not change colleague expectations around total compensation. But it will give additional flexibility in how we use variable pay to recognise individual performance … supporting Barclays to attract and retain the best talent globally in a competitive market.”
The cap was originally aimed at stamping out a bonus culture blamed for laying the ground for the financial crisis by encouraging short-term profits over longer-term stability. The hope was that, with less of an individual’s pay riding on performance, there would be a lower incentive for risky behaviour.
But UK politicians and regulators broadly opposed the rules, arguing that the clampdown would make it harder to attract skilled bankers, who would instead flee to rival hubs in New York, Singapore or Zurich. George Osborne, then chancellor, tried to overturn the measure at the European court of justice in 2014.
Plans to scrap the banker bonus cap were initially announced by the an Osborne successor, Kwasi Kwarteng, during the Liz Truss government’s disastrous mini-budget in September 2022, though most big UK lenders indicated that they were not consulted on the proposals. They were later approved last autumn by Jeremy Hunt, then chancellor, and by UK regulators, including the Bank of England.
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Labour has ruled out reversing the decision.
A Barclays spokesperson said: “The revised bonus cap will not alter the way Barclays sets its incentive pool, which is based on overall group performance. It will allow us greater flexibility to differentiate individual bonuses within a small and defined group of colleagues, enabling Barclays to continue to compete effectively to retain and attract the best talent globally.”