<strong>Q. WHAT STANDARDS WILL BANKS HAVE TO MEET?</strong><br /><strong>A. </strong>The banks have agreed to abide by standards set at last month&rsquo;s G20 summit in Pittsburgh. These include the Financial Service Authority&rsquo;s own rules on remuneration, which will be updated to match the G20 agreement.<br /><br /><strong>Q. WHAT WILL THIS MEAN FOR DISCLOSURE OF BONUSES?</strong><br /><strong>A. </strong>Lenders will have to submit an annual report on compensation. The report must outline the decision-making process for compensation policy, including the composition and mandate of the remuneration committee.<br /><br />Remuneration must be disclosed for senior executives, but also for &ldquo;employees whose actions have a material impact on the risk exposure of the firm&rdquo;.<br /><br />Firms will be required to reveal how they arrive at performance measurements, the link between pay and performance, deferral policy and criteria for vesting of share awards.<br /><br />The methodology for ratio of shares to cash compensation will have to be disclosed, as will any sign-on and severance payments.<br /><br /><strong>Q. WHAT ABOUT THE ISSUE OF DEFERRED BONUSES?</strong><br /><strong>A. </strong>A &ldquo;substantial portion&rdquo; of any bonus &ndash; between 40 and 60 per cent provisionally &ndash; should be deferred over a period of not less than three years.<br /><br />More than 50 per cent should be awarded in shares or share-linked instruments, with the rest in cash.<br /><br />The proportion of a bonus paid in shares should increase for the most senior and the most highly-paid staff.<br /><br /><strong>Q. WILL GUARANTEED BONUSES BE ALLOWED?</strong><br /><strong>A. </strong>They will not. &ldquo;Guaranteed bonuses are not consistent with sound risk management or the pay-for-performance principle and should not be a part of prospective compensation plans,&rdquo; the G20 said.<br /><br /><strong>Q. WILL THERE BE CLAWBACKS INTRODUCED?</strong><br /><strong>A.</strong> In the event that an institution performs badly due to the actions of an employee, bonuses can be clawed back.<br /><br /><strong>Q. WHAT IF A BANK REQUIRES A BAIL-OUT?</strong><br /><strong>A. </strong>If the state has to intervene to prop up a lender, &ldquo;supervisors should have the ability to restructure compensation in a manner aligned with sound risk management and long-term growth&rdquo;. Compensation for the highest-paid staff would also be subject to review and approval.<br /><br /><strong>Q. WHAT IF BANKS DON&rsquo;T COMPLY WITH THE AGREEMENT?</strong><br /><strong>A.</strong> Any bank who don&rsquo;t conform face &ldquo;prompt remedial action&rdquo; and possibly &ldquo;corrective measures to offset any additional risk that may result from non-compliance&rdquo;.<br /><br /><strong>Q. WILL OTHER COUNTRIES OPT TO FOLLOW SUIT?</strong><br /><strong>A.</strong> Almost certainly, but some commentators fear the UK&rsquo;s banks will be disadvantaged because measures here will be tougher than those in the US, which means bankers could decide to head overseas.<br /><br /><strong>Q. WHAT IS NOT INCLUDED IN THE AGREEMENT?</strong><br /><strong>A.</strong> France and Germany were initially pushing for caps on individual bonuses, but the G20 did not agree on this measure. Nor will banks have publicise their 20 top earners as City Minister Lord Myners suggested.