Financial News

  • 17 January 2014, 21:56

EU Rules Spur Base Pay Hike For Goldman Staff

Goldman Sachs is to hand substantial rises in fixed pay to hundreds of London-based staff as it contends with new European restrictions on bankers' remuneration.

Sky News has learnt that the Wall Street giant has decided to introduce role-based allowances for its most senior City employees in a bid to head off a growing number of requests for transfers to offices outside Europe, where they would be exempt from new European remuneration rules.

Goldman, which reported mixed fourth-quarter results on Thursday, has taken the unusual step of delaying informing European staff about their new salaries because it is still determining the number of individuals who will be eligible for the new fixed-pay awards it plans to introduce this year.

The shift from variable to fixed pay, about which staff will be informed shortly, will in some cases be worth hundreds of thousands of pounds, although the sums are not expected to impact the total amounts that Goldman's top risk-takers in London will earn.

Goldman partners are usually paid annual salaries of approximately $600,000 (367,000) but are often awarded many times that sum in performance-related bonuses.

Under the new pay framework imposed by Brussels, the bank will only be able to pay double the level of salaries in variable pay to London-based staff in any given year.

That would mean that if Goldman retained the existing framework for fixed pay, the maximum sum its top City staff would be able to earn annually would be around 1.1m.

The bank's 2013 results released on Thursday revealed that Goldman had avoided many of the legal penalties faced by its rival, JP Morgan Chase, but experienced choppy trading in its fixed income division.

Goldman announced a net profit of $2.33bn (1.4bn) for the fourth quarter of the year, a decline on the same quarter in 2012.

Goldman typically informs employees about their bonuses for the past year and salary changes for the coming 12 months on the day of its annual results.

However, an insider said that Goldman had on Thursday afternoon told the 6,000 staff who work for it in Europe, the Middle East and Africa (EMEA) that their fixed pay awards and 2014 salaries would not be communicated to them until the end of January.

Goldman's employees in the region did receive news of their 2013 bonuses as planned on Thursday although the bank does not break down overall pay at its London operations.

Senior Goldman executives are said to have opted for the delay in informing EMEA-based staff about the fixed-pay awards because hundreds of employees will become eligible for the new role-based allowances.

The bank is expected to identify the senior risk-taking staff who will be eligible for the new pay awards in the next fortnight.

The new European Union rules will restrict the amount that banks operating within the trading bloc can pay to their staff as a proportion of their basic pay.

From this year, banks will be allowed to pay up to 100% of salaries as bonuses, or double that sum with the approval of the company's shareholders.

The need to secure investor approval was used by Ed Miliband to apply pressure to the Conservatives on Wednesday. The Labour leader demanded that the Government block a move by Royal Bank of Scotland (RBS) to secure the ability to pay the higher sum to its staff.

At Goldman, the new allowances will count towards base salaries for the purposes of calculating bonus entitlements, although they are unlikely to be included in the calculation of pension contributions.

Last year, Goldman employed 115 senior risk-takers whose pay now has to be disclosed anonymously under rules introduced by the City watchdog.

That number is likely to grow substantially from this year under the new rules, insiders indicated.

The precise method of augmenting staff pay at Goldman has not yet been decided but could include stock awards and may be awarded on a lump-sum basis at the end of the next financial year, they added.

Barclays and HSBC are among the other banks which have devised methods for enhancing the remuneration of key staff as they seek to avoid a defection to rivals who are less hindered by the EU ratio cap.

Goldman is one of the City's largest employers and among the biggest overseas contributors to the UK Exchequer through corporate and personal taxation.

It said on Thursday that its compensation-to-revenue ratio was 36.9% in 2013, down from 37.9% a year earlier, equating to a total pay and benefits bill of $12.61bn (7.7bn).

A defection of staff away from the UK would dent the Treasury's coffers, although there has been little evidence since the financial crisis of an overseas exodus of City workers despite measures such as the Coalition's bank levy.

Goldman's historic status as a lightning rod in the debate about bank pay means that its decision to introduce the role-based allowances may fuel the debate about bank pay.

In 2010, it imposed a 1m cap on the total compensation of its London-based partners as it sought to minimise its exposure to the then Labour government's one-off tax on bank bonuses.

Last year, the Wall Street ditched a plan to defer some pay increases until after the reduction in the top rate of income tax following criticism that was also directed at other banks.

A Goldman spokeswoman declined to comment on Thursday.

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