Banks told to reveal top earners

Rhian Nicholson
26.11.09 11:54

Banks should disclose the number of employees earning seven figures salaries and strengthen the role of non-executive directors on banking boards, the Walker Review has concluded.

The government sponsored report on the corporate governance of UK banks is tightening the screws on the risky activities of the financial sector which almost brought about its collapse earlier this year.

The changes are being called the toughest set of rules on pay in the world although these are not technically caps.

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."

Most non-executive directors will need to spend substantially more than on the job and ask "tough questions about strategy".

The report also recommends that the chairman of the board should face annual re-election and the chairman of remuneration committee to face re-election if the report gets less than 75% approval.

He concludes that the responsibilities of the remuneration committee should be extended across whole banks and the committee direct control over 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 banks to publically disclose the number of employees earning more than �1 million, broken down by bands of pay.

Walker added that institutional shareholders should also play a more active role as owners of businesses

"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," he said.

Walker's recommendations were published in draft form in July but sections on pay have now received tougher treatment to clamp down on the prospect of huge bonuses.

He also wants the recommendations to be implemented in law, rather than on a "comply or explain" basis outlined in July.

The government is planning to introduce all of Walker's recommendations as soon as possible. The draft financial services bill is currently going through Parliament.

Chancellor Alistair Darling said: "Sir David's proposals are the blueprint for how banks must be run in the future. We will issue draft regulations for consultation in the new year and bring them into force as soon as practicable after enactment of the bill. This will force disclosure for the 2010 performance year."

Angela Knight, chief executive of the British Bankers' Association, said the proposals hit the right targets.

"Sir David Walker received widespread support from the many changes already taken place since interim report - indeed the industry is already adopting his early recommendations on board composition and responsibilities," she said.

The Financial Services Authority (FSA) added: "Many of the recommendations complement work the FSA is already carrying out, such as the increased focus on the quality of governance and risk management at FSA-regulated firms.

"The FSA has already strengthened its approach to the approval of individuals who manage and influence firms at a senior level and will publish a further consultation paper on governance and approved persons early next year."

Banks told to reveal top earners

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