Banks could be forced to publish details of guaranteed bonuses after a group of global regulators said rewards at financial firms must be more transparent to help prevent another banking crash.
City workers should also have their pay and bonuses linked to the longer-term performance, according to a consultative document issued on Monday by the Basel committee for banking supervision.
The committee said regulators and shareholders must be given access to more information about how bankers are paid and the risks posed to financial institutions that pay guaranteed bonuses.
The proposals follow discussions in the G20 and individual Parliaments over how to curb excessive pay and the potential for bonuses to encourage risk-taking behaviour. Most countries have refused to implement fundamental reforms to tackle excessive bank pay, preferring to wait for rules that would affect all banks.
Britain has agreed to impose a £2.5 million bonus tax, but has backed away from proposals put forward by a review body headed by Sir David Walker that recommended banks should reveal how many millionaires they create each year.
Divisions within the U.K.'s coalition have come to light in recent weeks with Business Secretary Vince Cable voicing concern that bankers should face tighter rules to prevent them taking excessive risks. Mr. Cable is drawing up his own plans to demand more disclosure on bankers' pay and is understood to be prepared to use his existing consultation on the “long-term focus for corporate Britain” to force banks to provide information about the way they pay their staff.
While Mr. Cable has made it clear he advocates more disclosure and that he wants to push through the Walker proposals that named individual bankers, the Basel proposals go some way to meet his demands.
“The committee believes that these additional pillar three requirements on remuneration will support an effective market discipline and will allow market participants to assess the quality of the compensation practices and the quality of support for the firm's strategy and risk posture,” said the document.
Banks would also need to disclose the number and total amount of guaranteed bonuses paid during the financial year and the total amount of outstanding deferred compensation.
The Basel committee is made up of representatives from central banks and meets in Geneva at the headquarters of the Bank of International Settlements. It came under fire in the wake of the credit crunch for failing to monitor the build up of bank lending that eventually led to a liquidity crisis and the near-collapse of the financial system.
Last week, Goldman Sachs responded to criticism of its role in the crisis by establishing a long-term bonus plan that lets the board award cash and stock on top of existing compensation, but enables the firm to take back money if the employee takes on too much risk.
The plan is intended to reward executives if the bank performs well in the long term and ensure the firm does not take imprudent risks. — © Guardian Newspapers Limited, 2010
