London banker bonuses: How a £1m bonus will be paid under the new looser rules

If you're a banker in London, the state is your friend. After first lifting the European Union's bonus cap so that banks can now pay bonuses equivalent to 25x salary instead of only 2x salary, the British government has now relaxed UK bonus deferral rules too.

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The changes were announced today by the Bank of England and they helpfully take effect from October 16th so that they can be applied to this year's coming bonus around. 

They will be of particular interest to the material risk takers (MRTs) at banks in London, who typically earn bonuses of £500k+.

These are the key changes:

• Senior bankers can now receive their bonuses within four years instead of eight. 
• Senior bankers' deferred bonuses can be paid in part from year one instead of year three.
• A higher proportion of bonuses can now be paid in cash from year one. It used to be the case that 60% of all bonuses over £660k were deferred for MRTs; now it's only 60% of bonuses over £660k. The first £660k will be subject to 40% deferrals instead.
• Dividends and interest may now be paid on deferred bonuses. 
• Fewer people will be defined as MRTs in the future. From now on, MRTs won't automatically be defined as anyone earning over £500k. They will still be defined as anyone able to have a material risk impact on the business. 
• If you've been made an MRT within three months of receiving your bonus, you won't be covered by the rules.
• Bonuses can still be clawed back for up to seven years.

The real things you need to know are shown in the chart below. Under the new rules coming into effect tomorrow, £500k of a £1m bonus will available in year one. Under the old rules, it was only £200k.

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