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Bonus cap removal: What it would mean for UK banks

Britain's banks could have scope to offer higher bonuses and more effectively compete with global peers for executive talent if an EU cap is scrapped.

U.K. Chancellor Kwasi Kwarteng aims to remove the cap, introduced in the wake of the 2008 global financial crisis to curb risk-taking, as part of plans to reform the country's financial sector, sources told the Financial Times. It limits bonuses to 200% of a banker's salary.

The CEO and CFO of Britain's largest bank, HSBC Holdings PLC, were paid bonuses of $2.2 million and $1.3 million for 2021, equivalent to 129% and 130% of salary, respectively, S&P Global Market Intelligence data shows. The CEOs and CFOs of Barclays PLC and Lloyds Banking Group PLC were paid bonuses ranging from 45% to 88% of salary.

This compares to higher bonus payouts at U.S. banks, where CEOs and CFOs at The Goldman Sachs Group Inc., JPMorgan Chase & Co. and Citigroup Inc. received bonuses of between 333% and 575% of their 2021 salary.

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The U.K. has opposed the EU bonus cap since its introduction in 2014, with former Prime Minister David Cameron's government having mounted an unsuccessful legal challenge against it. In 2016, U.K. financial regulators said the shift to fixed remuneration "makes it more difficult for firms to adjust variable remuneration to reflect their financial health," while traders association FIA EPTA said the cap puts U.S. and Asian subsidiaries of European firms at a competitive disadvantage.

Britain's exit from the EU in 2020 means the country is free to remove the cap. Kwarteng has outlined plans for a "Big Bang 2.0," recalling the so-called Big Bang deregulation of financial markets in the U.K. in the 1980s, and the cap's removal would form part of that.

Ensuring the banking industry is globally competitive is essential for future economic growth, a spokesperson for trade body U.K. Finance told S&P Global Market Intelligence.

"We are keen to see the steps the government plans on taking to make the U.K. an attractive place to do business," the spokesperson said.

The CEO and CFO of EU-based ING Groep NV received bonuses of 15% and 14% of 2021 salary, respectively, and BNP Paribas SA's CEO received 111%.

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UBS Group AG, which is based in Switzerland and thus not in the EU, paid its CEO a bonus that was less than salary in 2021, but more than 450% of salary in both 2017 and 2018, S&P Global Market Intelligence data shows. Fellow Swiss bank Credit Suisse Group AG paid its CEO and CFO bonuses of 30% and 5% of 2021 salary, although it has been marred by recent scandals and replaced its CEO this year.

Total compensation for CEOs and CFOs includes additional elements beyond salary and bonuses, such as stock options.

HSBC declined to comment to S&P Global Market Intelligence. Barclays, Lloyds, and the U.K. Treasury did not respond to a request for comment.

SNL Image * Access executive compensation data for HSBC, Barclays and Lloyds on CapIQPro. Learn more and request a demo.