The new framework, created by the Wall Street behemoth, will mean senior bankers can now receive 10 times their fixed salary in annual bonuses, Sky News learns.
Wall Street’s biggest bank is scrapping a Brussels bonus cap for its London-based staff, weeks after rival Goldman Sachs shot up post-Brexit pay.
Sky News can reveal that JP Morgan Chase told staff on Wednesday that it will retain some elements of the pay packages put in place after the European Union’s cap on variable pay came into force in 2014.
The system prevents material risk takers (MRTs) working in lenders’ EU operations from earning more than double their fixed salary in the form of variable remuneration.
Sources said JP Morgan, which employs 22,000 people in the UK, including around 14,000 in London, has decided to retain a significant part of the fixed pay allowances used to calculate the maximum rewards of eligible employees.
The US-based banking giant has also decided to increase the bonus cap limit from twice the fixed salary to a multiple of 10.
This would mean that a senior JP Morgan banker or trader in Britain who earned £2m in annual fixed pay would be entitled to a bonus of up to £20m from this year, rather than £4m under EU rules.
The source said generally keeping wages flat was also desirable for older workers focused on managing monthly household expenses such as mortgages.
In response to an inquiry from Sky News, a JP Morgan spokesman said: “We believe we have developed one of the most attractive and balanced pay structures in the industry. The fixed pay will remain very competitive and we will have plenty of room to reward the highest performers.” performers right.”
Sources close to the bank said its analysis suggested the removal of the EU bonus cap was unlikely to have a significant impact on overall annual pay levels during the current financial year.
“Bonuses will continue to be discretionary and driven by year-over-year performance,” one of the insiders said on Wednesday.
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The new structure is understood to be flexible enough to adjust fixed wage levels if the regulatory environment shifts further.
Sky News revealed the details Goldman Sachs plans last monthwhereby the bank decided to increase its cap from 2:1 to 25:1.
But under Goldman’s revised structure, its fixed salary allowances are largely removed, meaning bonuses will always be calculated on a lower base than at JP Morgan.
A move by Wall Street’s two biggest investment banks to rethink the way they approach pay for their top UK staff is expected to spark an arms race between rivals looking to stay competitive.
A JP Morgan insider said the bank believes its overhauled pay structure will be attractive both to bankers working for rivals and those it wants to attract to Britain from abroad.
At Goldman, the head of the non-US firm said the bonus cap prevented it from adopting a consistent approach to pay.
Banks have argued against the bonus cap for years, arguing that it did nothing to reduce risk-taking behavior and that in many cases it did the opposite.
Among those who publicly opposed it was Andrew Bailey Bank of England governor, who said in 2014 that it was “bad policy [and] the debate around it is misguided”.
Because the bonus cap does not set a cap on total compensation, industry leaders warned that it put pressure on pay and bonus increases that were unrelated to longer-term performance and that could not be reduced or clawed back if there was failure or prior misconduct. subsequently appeared.
During his ill-fated tenure as chancellor in the Liz Truss administration, Kwasi Kwarteng moved to remove the EU bonus capIt claims it would boost the international competitiveness of the UK’s financial services sector.
UK regulators agreed that lifting the cap would help financial stability by allowing firms to cut pay more quickly during a downturn or in scenarios where they need to conserve capital.
Bosses at lenders such as Deutsche Bank and Santander also criticized the cap, while Barclays and HSBC received shareholder approval to eliminate double pay.