The European Union's bonus cap came a step closer to reality today with the first reading of the new capital requirements directive (of which the cap is one element) in the Council of the European Union. Meanwhile, headhunters and Barclays insiders said the British bank is looking at ways of increasing its investment banker salaries permanently.
Like Goldman Sachs, Barclays is said to have increased its investment banking salaries on a temporary basis when salaries were hiked after the financial crisis. "The increase in salary was given in the form of 'uplift'," said one senior Barclays insider. "The uplift isn't pensionable and can be removed."
Last October, Barclays was said to be removing the uplift for some senior staff, resulting in salary reductions of up to 40%. Now that the European Union is capping bonuses at around 2.5 times salaries, Barclays is said to be re-thinking the situation. "We're discussing converting the uplift into a permanent increase in fixed salary," said the banker we spoke to. "But nothing has been agreed yet."
Barclays declined to comment. However, two headhunters - speaking on condition of anonymity - said some vice president level staff in Barclays' investment bank have already had the 'uplift' converted into permanent and pensionable salary increases.
Today's document clarifies that the EU is capping bonuses at 100% of salaries, unless two-thirds of investors vote otherwise - in which case bonuses can be increased to 200% of salaries. Twenty-five percent of that 200% can then be paid in instruments which will be deferred for five years or more. That 25% will be discounted at a rate yet to be determined. This should enable the bonus cap to be increased slightly above 200%.
"If an individual's base salary is £100k, his maximum variable remuneration under the cap will be £200k," said Sam Whitaker, counsel at law firm Shearman & Sterling. "Of that £200k, £50k can be paid in discounted long-term instruments," added Whitaker. "If a discount rate of 50% was permitted, this would allow long-term deferred instruments with a value of £100k to be awarded because only 50% of them would be counted towards the cap, taking the cap to 250% of salaries."
The European Union has made it clear that the discount rate is likely to be 50% or below, said Whitaker.