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Friday, July 17, 2009

UK banks to disclose remuneration of top earners?

A recent study of UK banks has recommended that banks need to disclose information on the pay and bonuses of all their top earners, in addition to board members.

The Report also recommended that a bank's Remuneration Committee should extend its responsibility for pay policies to the entire firm rather just the board, particularly for staff members whose remuneration exceeds the median level remuneration of executive directors.

It also stated that the UK financial sector regulatory body, the Financial Services Authority (FSA), should have a bigger role in monitoring the corporate governance of the financial institutions, from hiring new directors to scrutinising pay and risk management policies.

In Fiji, only locally incorporated financial institutions are required to have in place boards. Branches of overseas incorporated financial institutions do not have boards in Fiji, except for management committees that oversee the Fiji operations.

Whilst all financial institutions publish Key Disclosure Statements which provide audited information on their Balance Sheets, Income and Expenditure Statements and selected other prudential ratios, no specific information on executive remuneration is provided.

Should this be required would be a question for the authorities to answer. However, given that fees and charges of financial institutions are a topic of interest in Fiji, when a bank does pay extraordinary levels of remuneration would have an impact of the level of charges which are then passed onto a financial institution's customers.

Financial institutions that require a review of their risk management framework can contact our company on telephone (679) 3342719, (679) 3544897 or email info@gilbert.com.fj. We also offer services in the areas of :
  • strategic and corporate planning,
  • capacity assessments,
  • business continuity planning,
  • investment advice and portfolio management and on
  • any financial institutions or financial sector issues.

Read below the article from The Telegraph.


"Banks urged by Walker Report to publish pay of all top earners, by Louise Armitstead

Sir David Walker's recommendations that British banks should publish the pay and bonuses of all their top earners, not just board members, has been welcomed by the Gordon Brown.

His far-reaching review on corporate governance in the British financial sector, which was commissioned by the Prime Minister in February, recommends a public and regulatory scrutiny of pay practices across financial institutions in order to curb the excesses that brought the financial system to close to collapse.

The Prime Minister told MPs on the House of Commons Liaison Committee that he welcomed Sir David's call for tougher non-executive directors to crack down on boardroom excesses.

Mr Brown told MPs he remained "angry" over the inflated pay and reckless speculation indulged in by some bankers and said Sir David made "some very clear recommendations" which he believed would be adopted.

"The general recommendation that the role of chairman and the role of executive directors and non-executive directors in particular in banks is going to change. It's one that we support wholeheartedly, " he said. "You cannot have non-executive directors, as we've seen at some of the financial institutions, who do not understand the risks their company is taking."

"There have been excesses, it is seen by the public as irresponsible and unfair, we have got to take the action," he said, as he defended his response to the banking crisis and insisted Britain had set a model for the rest of the world to follow.

Sir David's report recommends an overhaul of City pay practices as well as a radical shake-up of boardroom practices and conventions.

The report is broken down into 39 Recommendations of which 12 are dedicated to pay.

He argued that the remit of the Remuneration Committee at banks should be extended to take responsibility for pay policies of the whole firm rather just the board, in particular the staff whose pay exceeds the median level of the executive directors.

The pay levels of these staff, of which he said he found a “surprising number”, should be published in bands rather than by name.

All pay should be heavily linked to performance and the payout of bonuses for top earners should be staggered over five years.

In addition, the chairman of the remuneration committee should automatically stand for re-election if more than 25pc of investors vote against his report.

Sir David said: “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.”

His recommendations focus particularly on boosting the responsibility and accountability of board members.

The report argues for the creation of a new role of Chief Risk Officer, answerable only to the board, as well as a new Risk Committee.

With strong references to Royal Bank of Scotland’s ill-fated acquisition of ABN Amro, Sir David argues that the Risk Committee should be particularly responsible for challenging strategic transactions.

Sir David also envisages a far more robust chairman at the head of financial institutions, responsible for challenging the work and plans of the chief executive and the rest of the board.

The chairman will be subject to new levels of scrutiny from regulators and from shareholders including annual re-election.

In an interview with the Daily Telegraph, Sir David said: “One very experienced chairman said to me, “But this will make chairmen a lightning conductor for all that’s perceived to be wrong.”
My answer to that is: absolutely right.”

The report also demands a radical shake-up of non-executive directors. He included recommendations that directors should spend more time doing their jobs – between 30 and 36 days a year – and have more professional and structured support including regular “business awareness sessions.”

In addition, the FSA should be actively involved in both the appointment and ongoing suitability of directors.

The Walker report also recommends an overhaul of the role of institutional shareholders whose role as “absentee landlords’’ is highlighted as a factor in the failure to curtail excesses in the banking system.

Investors should have to engage with companies more actively and, to make sure they do, they should sign up to principles with which they must either “comply or explain” why not. The new shareholder Code should be monitored by the Financial Reporting Council. In addition, voting records should be published for scrutiny.

The FSA will have a far greater role in monitoring the corporate governance of the financial institutions, from hiring new directors to scrutinising pay and risk management policies.

Although Sir David’s remit was originally just to recommend changes in the corporate governance of banks but this it was expanded to financial institutions. He said the principles could almost all be adopted by other companies, with the exception of the ones regarding risk which are specifically financial.

Sir David, a senior adviser to Morgan Stanley, is a respected City and Westminster veteran. Through a career that has spanned nearly half a century he has held roles including a directorship of the Bank of England in 1981 and deputy chairman of Lloyds, the banking group.

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