HSBC has told employees it will phase out fixed-pay allowances starting in January 2028, according to an internal memo seen by Reuters. The move comes after UK regulators scrapped the old rule that limited bonus pay to twice the size of fixed salary, a restriction that had been in place since the 2008 financial crisis.
The bank's decision means that for some staff, a portion of what was previously guaranteed pay will now be tied to performance and paid out as variable compensation. The exact scope of the change—which roles and which regions are affected—has not been fully detailed, but the memo signals a broader shift in how HSBC structures remuneration.
Why the change now?
The UK's Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) removed the bonus cap in late 2023, a move designed to give banks more flexibility in rewarding top talent and to make the UK more competitive as a global financial centre. The cap had been introduced in the wake of the 2008 crisis to curb excessive risk-taking, but critics argued it pushed up fixed salaries instead of linking pay to performance.
HSBC's plan to scrap fixed-pay allowances is a direct response to that regulatory change. By shifting more compensation into bonuses, the bank can tie pay more closely to individual and company performance. That could help it attract and retain senior staff in a competitive market, but it also introduces more variability in take-home pay for employees.
The change is not unique to HSBC. Other UK banks have been reviewing their pay structures since the cap was lifted, though the pace and scale of changes vary. For a bank of HSBC's size, with operations spanning Asia, Europe, and the Americas, the shift could have wide-ranging implications for its workforce and its cost base.
What it means for investors
For shareholders, the move is a double-edged sword. On one hand, tying more pay to performance can align employee incentives with the bank's financial results. If the bank performs well, bonuses rise; if it underperforms, compensation costs could fall. That flexibility can help protect profitability during downturns.
On the other hand, a greater emphasis on variable pay could lead to higher total compensation in good years, as bonuses are often paid out when profits are strong. Investors will be watching how HSBC balances rewarding staff with maintaining cost discipline. The bank has been under pressure to keep costs in check, and any significant increase in compensation expenses could weigh on earnings.
The phased timeline—starting in 2028—gives HSBC and its employees time to adjust. It also gives investors time to see how the new structure affects behaviour and results. The bank's ability to manage this transition smoothly will be a key factor in how the market reacts.
This story also fits into a broader theme of how banks are adapting to post-crisis regulations. As the UK loosens its bonus rules, other jurisdictions may follow, potentially reshaping pay practices across the industry. For investors, understanding these shifts is part of assessing a bank's long-term cost structure and risk profile.
HSBC's move comes at a time when the banking sector is navigating higher interest rates, economic uncertainty, and competition from fintechs. The bank's ability to attract and motivate talent while keeping costs under control will be crucial. As regulators continue to scrutinise bank resilience, pay structures that encourage prudent risk-taking are more important than ever.
For everyday investors, the key takeaway is that HSBC is making a strategic choice about how to pay its people. It's a sign that the bank is adapting to a new regulatory environment, but it also carries implications for its bottom line. As with any major corporate change, the proof will be in the execution.
