The Financial Services Authority has warned Britain’s biggest banks and building societies that bonus plans for bankers must link rewards with long term risk. FSA Chief Executive Hector Sants wrote a five page letter to the chief executives of 28 banks and building societies, informing them that ‘if the policies are not aligned with sound risk management, that is unacceptable’. Whilst the letter doesn’t have the status of mandatory guidance, the FSA has warned it would increase the regulatory capital requirements for banks who don’t sufficiently link pay with risk.
The FSA has spent a considerable amount of time looking at potential recommendations covering performance linked bonuses for bankers, but has brought forward the publication of its views to coincide with the government’s massive bank bail out.
The FSA is set to meet with leading banks to discuss the issue within the next few months, at which point the FSA will outline more detailed recommendations to the banks. Some of their recommendations include taking risk and cost of capital into account when calculating bonuses, possibly giving non-executive directors more input and introducing the idea of deferred compensation based on the average of a number of years’ performance.
FSA Warns Banks to Link Bonuses to Risk
FSA Warns Banks to Link Bonuses to Risk
Fri, 17 Oct 2008
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