Banks should be forced to reveal employees earning £1m
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Sir David Walker has recommended that banks should publicly disclose the number of employees earning more than £1m.
The Government commissioned Walker to produce a report on corporate governance of UK banks and financial institutions last February and the final report was published this week.
The report also recommends strengthening the role of non-executives and giving them new responsibilities to monitor risk and remuneration.
He also recommends a stewardship duty on institutional shareholders to play a more active role as owners of businesses.
On pay, the Walker Review recommends extending the role of the remuneration committee to cover firm-wide remuneration policy as well as giving the committee direct responsibility for the pay of all highly-paid employees. At least half of variable pay or bonuses should be paid in the form of a long-term incentive scheme with half vesting after three years and the rest after five years. Two-thirds of cash bonuses should also be deferred.
In addition the report recommends greater pay transparency in the big banks by requiring public disclosure of the number of employees earning more than £1m, broken down by bands of pay.
Other recommendations include the FSA monitoring investor conformity with the Stewardship Code, non-executives to spend more time on the job, and the Financial Reporting Council to sponsor the Stewardship Code.
Sir David Walker said: “The fundamental change needed is to make the boardroom a more challenging environment than it has often been in the past.
“This requires non-executives able to devote sufficient time to the role in order to assess risk and ask tough questions about strategy.
“Institutional investors should be less passive and prepared to engage earlier if they suspect weaknesses in governance. They enjoy the privilege of limited liability whereas taxpayers have ended up assuming unlimited liability in respect of the big banks. Early preventive medicine through shareholder engagement can save everyone substantial time and money later on.”
CMS Cameron McKenna partner Nicholas Stretch says: “Other than on pay disclosure, which will be compulsory and will also affect non-UK firms operating in London, companies remain free to reject the many of the pay proposals provided they can provide justification for doing so.
“Although many of the Walker recommendations will now make their way into the FSA’s remuneration code to avoid a parallel regime developing, this is a welcome use of the ‘comply or explain’ nature of the Combined Code and risk-based approach of the FSA’s remuneration code rather than the rules ending up in legislation.
“It would have been unacceptable to have had individual remuneration details being published for everyone above median director pay as Lord Myners had at one stage suggested.
“The banding proposals are eminently more sensible, the devil on pay disclosure is always in the detail. The relevant regulations will not be out for some time, and so there is still plenty of capacity for change and political input as part of pre-election fever and indeed the banks’ own bonus proposals may well help to shape this.”
Readers' comments (1)
Derek Vivian, IFA | 26 Nov 2009 4:16 pm
Whilst I applaud any action to curb greeding earning at the expence of clients' capital I should want to suggest the FSA and Government 'persuade' all companies who cureently paybonuses to change to the profit sharing method. This would have to mean the company makes a profit before any additional pay is awarded. Front line managers or salespeople would have a larger share which should be scaled to fit business attaining ability.
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