UK bank review recommends greater pay disclosure

London: Banks must disclose how much they pay top employees, a UK government sponsored report recommended Thursday in a bid to quell public anger over "bonuses as usual" in a sector shored up by taxpayer bailouts.

The report published from David Walker, former chairman of Morgan Stanley bank's international unit, lays down 39 steps to improve how banks are run.

Although touted as the toughest set of pay rules in the world, they stop short of actual caps or naming individuals, representing some respite for banks who on Wednesday were also cheered by a UK court victory over fees.

Board members should spend more time on the job and pay be closely monitored. Shareholders also have a duty to scrutinise how their companies are run, the report says.

Britain had to shore up its financial sector hit by the credit crunch. It nationalised or took major stakes in several banks such as Northern Rock, Lloyds and RBS.

Walker published his recommendations in draft form in July but has toughened up sections on pay as policymakers warn banks there can be no return to "business as usual" of unjustifiably large bonuses.

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

"There will still be public anger over bank pay and bonuses and that's understandable," Walker said on Wednesday.

"But this disclosure is not designed to appease the great British public. It is designed to deal with the problem that these high end people are capable of influencing the risk profile of banks and it is unsatisfactory that shareholders and remuneration committees have so far focused almost exclusively on executive board remuneration."

The government said it will introduce all of Walker's recommendations as soon as possible. Last week it published a draft financial services bill with provisions to implement the review.

"Sir David's proposals are the blueprint for how banks must be run in the future," Britain's Finance Minister, Alistair Darling, said.

"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," Darling said.

Election concerns

There could be changes, however, as the opposition Conservative Party is tipped in the polls to win the election due by June when the draft law may not have been adopted yet. Walker said he has "no reason to believe" the Conservative Party will take a different view.

"Whether this government continues or a new government takes charge, they are going to have to face this question next year and I am not for trimming my sails," he said.

The Financial Services Authority, announced yesterday it has appointed five new advisers to help develop better governance at financial institutions. Big listed banks and even unlisted firms such as building societies should report from 2010 all employees and board members whose annual packages top a £1 million. Disclosure would be in bands, starting at £1 million to £2.5 million (Dh6.7 to Dh15.19 million), with a second band at £2.5 to £5 million, with bands in £5 million lots thereafter.

In July, Walker had recommended disclosure of pay higher than the median of executive board members — typically around £2 million.

Remuneration for each of the unnamed employees should be broken down along business lines, salary, cash bonus, deferred shares, performance-related long-term awards and pension contributions. UK-based subsidiaries of foreign banks should also make similar disclosures.