JP Morgan Chase is set to lift the EU-imposed bonus cap for its London-based staff, following in the footsteps of rival Goldman Sachs.
This move marks a major shift in the post-Brexit financial landscape as banks adjust their pay structures to remain competitive.
The EU’s bonus cap was introduced in 2014.
It restricts variable pay for material risk-takers (MRTs) to no more than twice their fixed pay.
However, JP Morgan, which employs 22,000 people in the UK, including around 14,000 in London, is opting to modify this approach.
The bank will maintain a substantial portion of the fixed pay allowances to determine maximum bonuses.
However, JP Morgan will raise its bonus cap from two times fixed pay to a multiple of 10.
This change means a senior JP Morgan banker or trader in the UK with an annual fixed pay of £2 million could now receive a bonus of up to £20 million.
This is compared to compared to the previous cap of £4 million under EU rules.
Sources said maintaining high fixed pay levels is crucial for senior staff managing significant household expenses.
A JP Morgan spokesperson said: “We believe we have developed one of the most attractive and balanced pay structures in the industry.
“Fixed pay will remain very competitive, and we will have ample room to reward the highest performers appropriately.”
Insiders at JP Morgan suggest removing the cap will not significantly impact total annual pay levels this financial year.
Bonuses will continue to be performance-driven and discretionary.
The new structure is designed to be flexible enough to adapt to future regulatory changes.
Last month, Goldman Sachs raised its bonus cap from 2:1 to 25:1, although it removed most fixed pay allowances.
Critics say the removal could fail to curb risk-taking behavior
It led to bonuses being calculated from a lower base than at JP Morgan.
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This recalibration of pay structures by major investment banks will likely spark a competitive response from rivals aiming to attract and retain top talent.
An insider at JP Morgan said the bank’s new pay structure is expected to appeal to existing bankers at rival firms.
They also said it could be appealing to potential recruits from abroad.
Critics of the bonus cap, including Bank of England governor Andrew Bailey, have argued that it fails to curb risk-taking behavior.
They also say it could push up fixed salaries and allowances.
During his brief tenure as chancellor, Kwasi Kwarteng supported scrapping the cap.
He claimed it would enhance the UK’s financial sector’s global competitiveness.
UK regulators agree removing the cap could improve financial stability.
This is by allowing firms to reduce pay rapidly during economic downturns or capital conservation periods.
Banks such as Deutsche Bank and Santander have criticised the cap.
But Barclays and HSBC have secured shareholder approval to abolish the two-to-one pay limit.
