Walker review sets out UK banking reforms
Bankers should expect their large pay packages to be publicised, while banking non-executives should work up to 50% more on their job, according to the UK government's review of corporate governance in the financial sector, prepared by industry veteran Sir David Walker.
Walker has proposed that the board-level remuneration committees at banks should have their remits expanded so that they will look at how pay should be awarded firm-wide – with a "particular emphasis on the risk dimension".
He said there should also be a formal requirement to look at the pay of any banker who earned more in a given year than the banks' senior executives.
The review makes clear bonuses should be explicitly linked to performance, with rewards spread out into the future over three and five years. This would be instead of bonuses being paid in total in the current financial year, which has been blamed for creating a culture of excessive risk-taking at many institutions and helping to stoke the credit boom.
In a statement accompanying the publication this morning, Walker said: "Taken alongside the arrangements being proposed by the Financial Services Authority, the recommendations on remuneration are as tough or tougher than anything to be found elsewhere in the world. An important and urgent challenge is to promote adoption of similar approaches internationally.”
Meanwhile the review also turned the spotlight on non-executive directors at banks, who are supposed to perform a supervisory role.
Sir David was critical of the lack of banking experience on some boards, and said a test of this should form part of the FSA's vetting procedure. Non-executives at banks should spend up to 50% more time on their job, he said.
Similarly, all institutions should introduce risk committees at board level, with the power to block big transactions, such as the purchase of Dutch bank ABN Amro by Royal Bank of Scotland, blamed by many for causing the UK bank's collapse into government ownership as the credit crisis unfolded.
Lastly, Walker's review also examined the role of institutional shareholders in the banks' collapse - and recommended they be given extra responsibilities.
The report called for detailed principles for shareholders' "stewardship" of shares to be drawn up, and for the Financial Reporting Council, the body that oversees the UK's governance standards, to monitor fund managers' efforts in voting bank shares and engaging with management.
Currently, the Association of British Insurers, the Investment Management Association and the National Association of Pension Funds play the major role in co-ordinating their members' efforts.
-- Write to Mark Cobley at mcobley@efinancialnews.com
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