Walker plans bonus delays
BANKERS would have half of their bonuses withheld by employers for up to five years, under proposals designed to end City “short-termism.”
The new plans came from former Morgan Stanley chairman Sir David Walker yesterday in a review of banking in the wake of the global downturn.
Walker’s review of banks’ pay comes after some firms faced criticism for paying out one-year bonuses while the government has been forced to bail out several financial institutions.
Walker said: “It is clear that governance failures contributed materially to excessive risk-taking in the lead up to the financial crisis. Weaknesses in risk management, board quality and practice and control of remuneration need to be addressed.”
Prime Minister Gordon Brown added: “Remuneration has got to be long term.” He added that City watchdog the Financial Services Authority would have to beef up its code on bonuses.
Tory City minister Mark Hoban said more “radical reform” was needed.
Hoban added: “Under a Conservative government regulators will be much tougher on reckless bonus structures.”
Walker also proposed increased public disclosure of executive pay, although he stopped short of stating banks should name their high-paid staff.
Walker added remuneration committees should get greater powers to control pay.
The report called on rules to force independent board members – known as “non-executive directors” – to spend up to 50 per cent more time on their jobs.
SIR DAVID WALKER
THE WALKER REVIEW: KEY RECOMMENDATIONS
Scrutiny of pay
&9679; More power for remuneration committees to scrutinise company pay.
&9679; Not less than half of expected variable remuneration should be on a long-term incentive basis with vesting, subject to performance conditions, deferred up to five years.
&9679; Increased public disclosure about pay of high-paid executives.
&9679; Chairman of remuneration committee to face re-election if remuneration report gets less than 75 per cent approval.
&9679; The report should disclose, in bands, the number of executives whose total pay exceeds the executive board average total pay.
&9679; Clawbacks should be used as the means to reclaim amounts in limited circumstances of misstatements and misconduct.
&9679; Operations of foreign banks in Britain should also disclose pay details of “high end” executives as well.
Involving big investors
&9679; Financial Reporting Council to sponsor institutional shareholder code.
&9679; FSA to monitor conformity and disclosure by fund managers.
&9679; Institutional shareholders to agree a memorandum of understanding on collective action.
Better board selection
&9679; Non-executives to spend up to 50 per cent more time on the job. Minimum expected commitment of 30 to 36 days.
&9679; Non-executives to face tougher scrutiny under Financial Services Authority (FSA) authorisation process, such as an interview, to ensure they understand a bank’s complex activities.
&9679; Chairman of board to face annual re-election and at least two-thirds of his or her time should be devoted to the job.
Better risk monitoring
&9679; The board of a bank should set up a board risk committee, separately from the audit committee and chaired by a non-executive director.
&9679; Risk committees to have power to scrutinise due diligence and if necessary block big transactions
&9679; The chief risk officer should have a company-wide authority and independence, with tenure and remuneration determined by the board.