City firms race to beat pay-out cap

Financial services providers in the UK have increased their salaries by an average of 20 per cent to mitigate the threat of an European Union bonus cap, it emerged yesterday.

Fears that workers will leave the City for non-EU destinations have prompted businesses to take early action, Robert Half Financial Services, a recruitment firm, said. One in five providers have increased salaries by more than 30 per cent.

From next year, bank bonuses in the EU should be limited to no more than base salary – or up to twice salary with the explicit approval of shareholders. The rules will apply to all banks based in Europe, regardless of their country of origin, and to units of European banks based overseas.

Neil Owen, the global practice director at Robert Half, said some UK financial services firms were thinking of raising salaries and benefits to keep key staff. “With the UK competing with other international centres for the world’s top financial services talent, firms will need to strike the balance between risk and reward,” he said.

He warned that increasing pay could create an unstable cost structure.

Some 93 per cent of UK financial services executives asked by the recruitment specialist said they were concerned about losing talented staff as a result of the cap.

The cap is a setback for the Government, which had lobbied hard against it. Boris Johnson, Mayor of London, has said the proposals are “a boost for Zurich, Singapore and New York” at London’s expense.