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Will multi-year guarantees be a thing again?

Guaranteed bonuses in London banking: returning soon?

Now that the new Conservative government in the UK is committed to lifting the European Union's cap on banking bonuses, it's worth considering whether they might lift a few other things in the process. For example, the European Banking Authority's (EBA's) restriction on paying guaranteed bonuses to new hires. 

The restriction is included in the EBA's 2015 "final report on sound remuneration policies" and states that guaranteed bonuses may only be awarded in "exceptional" cases and can only apply for one year when they are awarded. 

Long ago, before guaranteed bonuses were restricted, it was common for banks in London to pay multi-year guaranteed bonuses to attract senior staff. Sanaz Zaimi, for example, was thought to have been given a $17m two year deal to go from Goldman Sachs to Bank of America in 2019. Alasdair Warren was understood to have been given a multi-year million $$ deal when he went from Goldman to Deutsche Bank in 2015. Both Zaimi and Warren have, understandably, since retired from banking.

Multi-year guaranteed bonuses are still paid on Wall Street, and their return to London could encourage the movement of senior bankers who might otherwise prefer the known risks of staying with a current employer. 

Unfortunately, regulatory lawyers caution that there's little sign that the lifting of the EU bonus cap will apply to EU restrictions on guarantees too. "There's been no talk about it," says Sam Whitaker, a partner at Shearman & Sterling, "And although we are not tied to European rules on remuneration, 90% of UK rules still reflect the same principles."  Peter Snowden, a legal consultant at Norton Rose Fulbright says the British government's logic behind lifting the bonus cap (that compensation has simply been shunted into salary instead), doesn't imply the lifting of guarantee restrictions too. 

It's also worth noting that UK edicts limiting guaranteed bonuses predated the EU's 2015 restrictions by six years. The FCA's 2009 remuneration code pre-empted the EU rules by banning guarantees for more than 12 months and similarly limited guarantees to exceptional situations. 

Nonetheless, if London banking salaries fall and bonuses rise when the bonus cap is lifted, it's conceivable that reassuring guarantees will become more necessary than they have been for years. At the moment, senior London bankers moving into a possibly precarious seat with a rival bank can at least console themselves with the thought that they're receiving a salary of £550k+ for the foreseeable future. If salaries are half that and bonuses are uncertain, swapping jobs won't be quite as appealing.

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AUTHORSarah Butcher Global Editor
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