Sept 25 (Reuters) - The Group of 20 nations on Friday endorsed a statement by its coordinating arm, the Financial Stability Board, recommending new rules for banker pay.
Implementation of the recommendations is up to national authorities. The following summarizes the statement, applying to banks and 'significant financial institutions':
GOVERNANCE: Boards of directors should have independent and competent compensation committees that weigh pay structures on performance in managing risk, capital and liquidity both for the short- and the long-term.
Annual reviews of compensation should be done and should be submitted to national authorities or disclosed publicly. 'If appropriate,' the reviews should be done by independent, outside experts.
PAY AND CAPITAL: Variable compensation, such as bonuses, should not limit a bank's ability to strengthen its capital base. 'National supervisors should limit variable compensation as a percentage of total net revenues when it is inconsistent with the maintenance of a sound capital base.'
PAY STRUCTURE: The size of the bonus pool should depend in part on the health of the balance sheet. It should shrink when the bank is doing poorly.
Much of the compensation for employees whose work has a material impact on performance should be variable, or dependent on performance not only of the individual and the business line in which he or she works, but of the overall firm, as well.
About 40 to 60 percent of variable compensation should be payable under deferral arrangements over a period of years. For the most senior employees, deferred variable compensation should exceed 60 percent. Deferrals should last three years or more.
More than 50 percent of variable compensation should be made in shares or share-linked instruments that align 'long-term value creation and the time horizons of risk.'
Guaranteed bonuses should be banned. 'Exceptional minimum bonuses should only occur in the context of hiring new staff and be limited to the first year.'
Termination contracts, such as golden parachutes, should be reexamined and retained only if they truly create long-term value and good risk management and do not reward failure.
Banks and firms should be able to claw back compensation previously earned in certain instances.
DISCLOSURE: Pay should be publicly disclosed in a format explaining amounts, features and justifications. The disclosures should include 'aggregate quantitative information,' but not necessarily the compensation paid to individual executives as presently disclosed in the United States.
SUPERVISORS: Firms that lack sound compensation policies should fix them or face 'corrective measures' from national supervisory authorities.
(Reporting by Kevin Drawbaugh in Pittsburgh, Editing by Frances Kerry) Keywords: G20/REGULATION PAY (kevin.drawbaugh@thomsonreuters.com, +1 202 898 8390, +1 202 488 3459 (fax)) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
Implementation of the recommendations is up to national authorities. The following summarizes the statement, applying to banks and 'significant financial institutions':
GOVERNANCE: Boards of directors should have independent and competent compensation committees that weigh pay structures on performance in managing risk, capital and liquidity both for the short- and the long-term.
Annual reviews of compensation should be done and should be submitted to national authorities or disclosed publicly. 'If appropriate,' the reviews should be done by independent, outside experts.
PAY AND CAPITAL: Variable compensation, such as bonuses, should not limit a bank's ability to strengthen its capital base. 'National supervisors should limit variable compensation as a percentage of total net revenues when it is inconsistent with the maintenance of a sound capital base.'
PAY STRUCTURE: The size of the bonus pool should depend in part on the health of the balance sheet. It should shrink when the bank is doing poorly.
Much of the compensation for employees whose work has a material impact on performance should be variable, or dependent on performance not only of the individual and the business line in which he or she works, but of the overall firm, as well.
About 40 to 60 percent of variable compensation should be payable under deferral arrangements over a period of years. For the most senior employees, deferred variable compensation should exceed 60 percent. Deferrals should last three years or more.
More than 50 percent of variable compensation should be made in shares or share-linked instruments that align 'long-term value creation and the time horizons of risk.'
Guaranteed bonuses should be banned. 'Exceptional minimum bonuses should only occur in the context of hiring new staff and be limited to the first year.'
Termination contracts, such as golden parachutes, should be reexamined and retained only if they truly create long-term value and good risk management and do not reward failure.
Banks and firms should be able to claw back compensation previously earned in certain instances.
DISCLOSURE: Pay should be publicly disclosed in a format explaining amounts, features and justifications. The disclosures should include 'aggregate quantitative information,' but not necessarily the compensation paid to individual executives as presently disclosed in the United States.
SUPERVISORS: Firms that lack sound compensation policies should fix them or face 'corrective measures' from national supervisory authorities.
(Reporting by Kevin Drawbaugh in Pittsburgh, Editing by Frances Kerry) Keywords: G20/REGULATION PAY (kevin.drawbaugh@thomsonreuters.com, +1 202 898 8390, +1 202 488 3459 (fax)) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.