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JPMorgan Chase has told its employees in the UK that it will remove caps on banker bonuses, making it the second-largest lender after Goldman Sachs to take advantage of Britain’s decision to lift limits on payouts to top performers.
Employees at the Wall Street bank’s UK operations will now be able to earn up to 10 times their base salary in bonuses while fixed pay will remain the same. The approach differs from that taken by Goldman Sachs in May, which opted to lower base pay while increasing the bonus ratio to 25 times income.
“We believe we have developed one of the most attractive and balanced pay structures in the industry,” said a spokesperson for the bank. “Fixed pay will remain very competitive, and we will have ample room to reward the highest performers appropriately.”
Banks have been grappling with how to change their pay structures after the UK scrapped caps on banker bonuses last October in a bid to boost the City of London and make it a more competitive market for talent.
The rule was a relic of the UK’s European Union membership, which introduced the cap in 2014 in response to the global financial crisis and limited what banks could pay so-called material risk-takers to two times their base salary. UK regulators had argued against its introduction as they claimed it hampered banks’ ability to tackle misconduct through hefty clawbacks.
In response to the cap, many lenders opted to increase fixed pay as a way to remain competitive on salaries, a move that has made it difficult to navigate the new landscape, with some banks reluctant to cut base pay.
The removal of the bonus cap is seen as a controversial move by those who argue that it will unnecessarily inflate pay because banks have already taken steps to compensate for the existing structure. However, large lenders argue that it allows them to keep up with pay packages in other markets such as New York.
JPMorgan’s plan aims to afford more stability to regular expenses such as mortgages and the bank does not expect annual pay levels to significantly change from this year, according to people familiar with the decision.
While other banks have so far not made public announcements about pay, several are expected to follow Goldman’s and JPMorgan’s lead in lifting the cap to avoid losing talent.
At the same time, some of Europe’s largest banks have called on the bloc to consider removing the cap so they are not put at a hiring disadvantage to the UK and US.
