Financial news

The government has set in motion plans to scrap the cap on bonuses, which limits variable pay to 100% of base salaries, but this could worsen diversity further, the Bank warned.

“There is evidence suggesting that bonus pay gaps are typically larger than fixed pay gaps, and the banking sector, in the consideration of the regulators, has high gender pay gaps,” the Bank said in a study looking into the how to scrap the cap. “Removing the bonus cap may indirectly increase this issue if firms do not take mitigating action.”

READ ‘Bad timing’: Bank bosses blast bonus cap scrapping

The gulf between what women and men are paid at top investment banks grew as firms rolled out bumper bonuses in the wake of record dealmaking fees, according to Financial News analysis of UK gender pay gap numbers. At JPMorgan, the average bonus gap increased from 63.9% last year to 69.4%, rising at Goldman Sachs, Morgan Stanley, Barclays and UBS as well.

The Bank said that it would be monitoring how any new pay rules impact diversity in the banking sector.

“Supervisors may follow up directly with their firms on how they are managing and monitoring this,” it added.

Diversity campaigners have long held that bonuses, which are often subject to qualitative criteria and decided by managers who may have bias, are one of the main drivers of a stubbornly wide gender pay gap in banking. Women are often paid equal salaries for the same role as men, but a proliferation of men in senior roles and subjective bonus decisions continue to skew the numbers.

The Bank of England’s study found that the closer senior banking staff got to limits on variable pay in a year, the more employers hiked up salaries and “roles based-allowances”, pushing overall compensation up, skirting regulators’ attempts to rein in pay and makes banks less able to cut costs during tougher times.

The Financial Conduct Authority axed discretionary bonuses for its own staff earlier this year, Financial News reported, moving to a system where performance is linked to base pay uplifts.

The FCA found this has benefitted women and ethnic minorities more, because they are more likely to be in junior roles that see larger proportionate hikes in base pay, and more Black and Asian staff fell below new salary bands than white peers, so more were entitled to an automatic pay uplift.

To contact the author of this story with feedback or news, email Paul Clarke