Banker Bonus Cap Removal Bursts Fair Pay Bubble

ESG Investor

Academics question logic behind higher pay for talent retention, as further pay votes are set for AGMs later this month.

HSBC’s decision to scrap a cap on bankers’ bonuses at last week’s AGM could open the floodgates for rising executive pay, further aggravating investor concerns around fair pay.

The vote to remove the cap received 99.3% shareholder support, allowing the bank to set a new limit for bonus and significantly increase payouts. HSBC paid its top investment bankers an estimated average bonus of US$771,700 last year, while median employee pay at the bank sits at £63,000 (US$79,000).

“It’s reflective of the general direction of travel with senior management pay in the UK,” Lindsey Stewart, Director of Investment Stewardship Research at Morningstar, told ESG Investor. “There’s a conviction, certainly among companies, boards and management, that higher pay has to be part of the equation for talent attraction and retention.”

Before the meeting, Stewart suggested the vote would “likely become a focal point for the UK’s conversation on executive pay”.

Overall trend

Under the previous legal cap, an employee’s bonus could not exceed 100% of their annual pay, or 200% with shareholder approval. These limits were scrapped from 31 October 2023 by then-Chancellor Kwasi Kwarteng’s mini budget.

Similar votes are due to take place at Barclays’ AGM on 9 May and Lloyds’ on 16 May. Beyond the UK, proxy advisor Glass Lewis has urged Morgan Stanley shareholders to vote against an executive pay proposal at its AGM on 23 May.

“The overall trend is going to be preserved,” said Stewart. “With HSBC is having approved this, it’s unlikely that we’ll see a rejection of those decisions at Lloyds or Barclays.”

Last week, Goldman Sachs removed its bonus cap for UK bankers, meaning they can now earn more than the previous limit of double their base pay. The decision was criticised by British trade unions.

The median pay for S&P 500 chief executives rose 9% to US$15.7 million in the year to April 15, increasing the gap between top management salaries in the US and UK. UK executives have complained they are underpaid compared to US peers, with several warning of a talent exodus without more competitive pay.

Last year,

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