views

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 &ldquo;short-termism.&rdquo; <br /><br />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.<br /><br />Walker&rsquo;s review of banks&rsquo; 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.<br /><br />Walker said: &ldquo;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.&rdquo;<br /><br />Prime Minister Gordon Brown added: &ldquo;Remuneration has got to be long term.&rdquo; He added that City watchdog the Financial Services Authority would have to beef up its code on bonuses.<br /><br />Tory City minister Mark Hoban said more &ldquo;radical reform&rdquo; was needed. <br /><br />Hoban added: &ldquo;Under a Conservative government regulators will be much tougher on reckless bonus structures.&rdquo;<br /><br />Walker also proposed increased public disclosure of executive pay, although he stopped short of stating banks should name their high-paid staff. <br /><br />Walker added remuneration committees should get greater powers to control pay.<br /><br />The report called on rules to force independent board members &ndash; known as &ldquo;non-executive directors&rdquo; &ndash; to spend up to 50 per cent more time on their jobs. <strong><br /><br />SIR DAVID WALKER<br />THE WALKER REVIEW: KEY RECOMMENDATIONS</strong><br /><br /><strong>Scrutiny of pay</strong><br />&9679; More power for remuneration committees to scrutinise company pay.<br />&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.<br />&9679; Increased public disclosure about pay of high-paid executives.<br />&9679; Chairman of remuneration committee to face re-election if remuneration report gets less than 75 per cent approval.<br />&9679; The report should disclose, in bands, the number of executives whose total pay exceeds the executive board average total pay.<br />&9679; Clawbacks should be used as the means to reclaim amounts in limited circumstances of misstatements and misconduct.<br />&9679; Operations of foreign banks in Britain should also disclose pay details of &ldquo;high end&rdquo; executives as well.<br /><strong><br />Involving big investors </strong><br />&9679; Financial Reporting Council to sponsor institutional shareholder code.<br />&9679; FSA to monitor conformity and disclosure by fund managers.<br />&9679; Institutional shareholders to agree a memorandum of understanding on collective action. <br /><br /><strong>Better board selection</strong><br />&9679; Non-executives to spend up to 50 per cent more time on the job. Minimum expected commitment of 30 to 36 days.<br />&9679; Non-executives to face tougher scrutiny under Financial Services Authority (FSA) authorisation process, such as an interview, to ensure they understand a bank&rsquo;s complex activities.<br />&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.<br /><br /><strong>Better risk monitoring </strong><br />&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.<br />&9679; Risk committees to have power to scrutinise due diligence and if necessary block big transactions<br />&9679; The chief risk officer should have a company-wide authority and independence, with tenure and remuneration determined by the board.