Morning Coffee: Goldman Sachs' bonus cap plans are not so simple. UBS's latest cost-cutting intentions
Brexit is bearing fruit. Goldman Sachs is lifting the bonus cap for its circa 570 regulated London bankers and come the end of this year, bonuses this year might be 15 times salaries instead of two times salaries. Or not.
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Lifting the European Union's bonus cap is fine in jingoistic theory, but less easy in practice. This is because, contrary to widely held belief, the removal of the bonus cap does not imply a big increase in pay: banks will likely want to hold pay for individuals stable across the cycle; bonuses may be higher in some years but lower in others. To enable this, salaries (or at least salaries, plus fixed allowances) must fall.
As we observed yesterday, it looks a lot like the average senior Goldman Sachs banker in London could see a $447k (£350k) drop in his/her salary as a result of the sunlit bonus uplands. This is what's required to bring the average senior London salary of $847k at Goldman Sachs in line with theNew York managing director average of $400k. In good years, bonuses will rise to compensate. In bad years, bad luck.
How will Goldman Sachs' London finest feel about this? Possibly not as enthused as the bombast might suggest. Salaries are guaranteed income; bonuses are not. Even in a bad year there are school fees and mortgages to pay.
This creates a problem for Goldman Sachs, and for the other banks, which the Financial Times says are planning to discard their own bonus caps «later in the year.» If banks are to cut salaries or remove allowances, they will likely need to tweak contracts. And tweaking contracts requires the consent of the signatories, who might not be inclined to give it.
The possibility, therefore, is that the new rule
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