Citigroup has become the latest Wall Street bank to scrap an EU-imposed bonus cap, paving the way for it to award bigger payouts to some of its top London staff.
The firm said in an internal memo that its changes would enable so-called material risk-takers (MRTs) to earn a bonus worth up to six times their base salary, up from a previous ratio of 2:1.
It added that Citi was not currently planning to materially change MRTs’ fixed pay, similar to the approaches taken by rivals JPMorgan and Barclays – both of which have moved to a higher 10:1 limit on bonuses.
Goldman Sachs fired the starting gun by removing the cap in May, allowing top performers at its 6,000-strong London office to earn up to 25 times their annual salary. Morgan Stanley is also planning to set a new cap but has not revealed further details on its approach.
Citi was one of many banks to respond to the EU’s cap with so-called role-based allowances – de facto bonuses that gave MRTs a higher proportion of fixed pay.
The memo said that as part of removing the cap, Citi would also reduce the use of these allowances from January.
A Citi spokesperson commented: “The proposed changes to our discretionary, variable and fixed compensation levels give us the right structure to offer competitive pay, remain highly attractive to the very best talent and encourage behaviours that are in the best interests of our customers, shareholders and the goals of our organisation.”
UK financial regulators announced last October they would remove the pre-Brexit requirement for banks to cap variable pay at 100 per cent of base salary for MRTs, or up to 200 per cent with shareholder approval.
The cap was introduced in 2014 by the EU as part of efforts to limit excessive risk-taking following the financial crisis.
Banks still face other measures to ensure their pay policies do not reward risk-taking, including the Financial Conduct Authority’s remuneration code.
Bloomberg News first reported the changes at Citi.