HSBC shareholders have voted in favor of removing the European Union-imposed bonus cap for its UK-based workers, marking the latest major international bank to do so. The decision was made at the bank’s Annual General Meeting (AGM) and was recommended by the board following the UK government’s decision to remove the cap after Brexit.
The bank, which recently announced the retirement of its chief executive on the back of better than expected profits, argued that removing the cap would reduce fixed costs. HSBC also stated that higher share-based awards for top earners would be easier to cancel or claw back in cases of misconduct.
The bonus cap was initially introduced by the European Commission in 2014 in an effort to discourage bankers from engaging in excessive risk-taking, which was considered a contributing factor to the global financial crisis of 2008. However, the cap of limiting bonuses to twice the amount of basic pay has been met with criticism from banks, who claim it has led to a brain drain in Europe and forced them to increase salaries to retain talented employees.
Among the critics of the cap is Andrew Bailey, the Bank of England governor, who described it as “the wrong policy” and the debate surrounding it as “misguided”. HSBC’s decision to remove the cap comes less than 24 hours after Sky News reported that US investment bank Goldman Sachs had become the first major operator in London to do so.
A spokesperson for HSBC stated that the UK government’s decision to overturn the cap “gives us greater flexibility to manage fixed costs through the cycle and pay for performance.” They also mentioned that this approach brings the UK closer to the practices in other global financial centers, making it a more attractive location for talent.
During the AGM, HSBC’s chair Mark Tucker explained the bank’s plans for using its discretion to set an appropriate variable to fixed pay ratio for employees deemed as material risk takers, in line with regulations. “The committee will take into account all relevant factors when setting the ratio, including the firm’s business activities and associated prudential and conduct risks,” Tucker stated.
He added that this flexibility will allow the bank to reduce fixed pay costs over time and increase the amount of pay that is variable and dependent on performance. This, in turn, strengthens the bank’s ability to attract and retain talented individuals in highly competitive markets, where many of its international competitors do not face similar restrictions.
