Morgan Stanley to join Goldman and JPMorgan in scrapping UK bonus cap

Morgan Stanley has joined the rush of Wall Street lenders changing their pay structures in response to the UK’s decision last year to scrap its cap on banker bonuses.

The bank, which has not yet informed staff of the decision, said in regulatory filings that it would replace the previously mandated limit with “an appropriate internal bonus cap”, but did not provide further details about how it would be structured.

“We continue to pay competitively and reward strong performance,” it said in a statement to the Financial Times.

The limit on bonuses of two-times base salary was introduced in 2014 across the EU in response to the global financial crisis but the UK removed it last year as part of a post-Brexit push to boost the City of London.

Most US and UK banks are expected to change their pay policies, which will alter the competition dynamics for hiring top bankers in London.

Morgan Stanley’s decision follows similar moves by US rivals JPMorgan and Goldman Sachs. Citigroup is also in the process of gaining regulatory approval for a change, according to a person with knowledge of its approach.

However, the heads of some European banks have complained that they are still held back by EU rules on limiting bonuses to two-times fixed pay. They have argued that the change in the UK rules will make it harder for them to compete on hiring.

Since the cap was introduced, fixed pay has risen substantially as bankers have demanded that their overall package remain the same, leading critics of removing the cap to question whether it will have much impact on pay levels.

Goldman and JPMorgan have taken different approaches to introducing their new pay structures. 

Goldman, which was one of the most vociferous lobbyists for removing the cap, has opted to lower base pay while increasing the bonus ratio to 25-times income.

JPMorgan, meanwhile, has said fixed pay will remain the same, but bonuses can be up to 10-times earnings.