A new framework set out by the Wall Street giant means senior bankers can now earn ten times their regular salary in annual bonuses, Sky News has learned.
Wall Street’s biggest bank is lifting the Brussels bonus cap for its London-based staff, weeks after rival Goldman Sachs kicked off a post-Brexit era in industry wages.
Sky News can reveal that JP Morgan Chase was in the process of notifying staff on Wednesday that it would retain some elements of the pay packages introduced after the European Union’s cap on variable pay came into effect in 2014.
The system prevents material risk takers (MRTs) working for lenders in the EU from earning more than twice their fixed salary in variable remuneration.
Sources said JP Morgan, which employs 22,000 people in Britain, including about 14,000 in London, had decided to retain a significant portion of the fixed wage allowances used to calculate the maximum bonuses of eligible employees.
The US-based banking giant has also decided to increase the bonus limit from two times the fixed salary to a multiple of ten.
That would mean that a senior JP Morgan banker or trader in Britain who earned £2 million in annual fixed pay would be eligible for a bonus of up to £20 million from this year, instead of £4 million under the EU rules.
One source said broadly maintaining steady pay levels was desirable even for senior staff focused on managing monthly household expenses such as mortgages.
In response to a query from Sky News, a JP Morgan spokesperson said: “We believe we have developed one of the most attractive and balanced compensation structures in the industry. Fixed rewards will remain highly competitive and we will have ample scope to reward the highest rewards. artists in the right way.”
Sources close to the bank say the analysis shows that the abolition of the EU bonus cap is unlikely to have a material impact on overall annual wage levels during the current financial year.
“Bonuses will remain discretionary and determined by year-to-year performance,” an insider said on Wednesday.
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The new structure is believed to be flexible enough to adjust fixed compensation levels as the regulatory landscape shifts further.
Sky News revealed details of Goldman Sachs’ plans last monthwhere the bank chooses to increase its limit from 2:1 to 25:1.
However, under Goldman’s revised structure, fixed compensation will be largely eliminated, meaning bonuses will invariably be calculated on a lower base than that at JP Morgan.
The move by Wall Street’s two biggest investment banks to recalibrate the way they approach pay for their top staff in Britain is expected to spark an arms race between rivals as they try to stay competitive.
A JP Morgan insider said the bank believed its new pay structure would appeal both to bankers working for rivals and to bankers it wanted to lure to Britain from outside the country.
At Goldman, the firm’s boss outside the US said the bonus cap was preventing the firm from taking a consistent pay approach.
Banks have opposed the bonus cap for years, saying it did nothing to reduce risk-taking and in many cases it did the opposite.
Among those who publicly opposed it was Andrew Bailey, the bank of England governor, who said in 2014 that it was “the wrong policy.” [and] the debate surrounding it is misleading”.
Because the bonus cap does not impose a cap on total compensation, leading industry figures warned that it had put upward pressure on salaries and allowances that were not linked to longer-term performance, and could not be reduced or clawed back if there were there was failure or previous misconduct. then came forward.
During his ill-fated period as chancellor in Liz Truss’s government, Kwasi Kwarteng pushed to abolish the EU bonus ceilingand says this would increase the international competitiveness of the UK financial services sector.
British regulators agreed that abolishing the cap would promote financial stability by allowing companies to cut wages more quickly during recessions or in scenarios where they needed to conserve capital.
Bosses at lenders including Deutsche Bank and Santander have also criticized the cap, while Barclays and HSBC won shareholder approval to abolish the two-for-one wage.