Regulators in the Group of 20 nations must work harder to implement international guidelines on executive compensation for bankers, according to the Financial Stability Board.
The FSB’s standards on aligning pay with “prudent” risk-taking are the “most challenging” for regulators to impose, the board said yesterday in a report. Authorities differ over how best to tie pay to performance while nations including Brazil, China and Japan don’t see compensation practices as “significant sources of risk,” according to the report.
The board is overseeing the world’s regulators as they grapple with new standards for executive pay that seek to reduce the risk of another financial crisis. Compensation practices at large financial institutions were a “key contributing factor” to the crisis, the FSB said in the report.
“Many national authorities have taken the necessary regulatory actions, supervisory oversight has intensified, and the governance of compensation schemes at firms has improved,” the board said. “Despite these considerable strides, more work is necessary to achieve sound compensation practices.”
Barclays Plc investors protested last week as 27 percent of shareholders voted against Chief Executive Officer Robert Diamond’s 12 million-pound ($19.5 million) compensation package. Citigroup Inc. investors rejected CEO Vikram Pandit’s $15 million pay last month while about a third of Credit Suisse Group AG shareholders opposed that bank’s plan.
Regulators have taken different approaches to implementing FSB standards that cover variable pay and deferred compensation. The board recommends that a “substantial portion” of bank executives’ compensation should be based on individual and firm-wide performance. Lenders also should stagger pay through deferral arrangements over a period of years.
Some regulators, including those in the U.K., France, Germany, the Netherlands, Italy, Spain and Singapore, have incorporated these standards as minimum requirements. Regulators in the U.S., Japan, Australia, Canada and Hong Kong have given banks more flexibility because of their “business models and risk profiles,” according to the FBS.
The board said it had put in place a procedure allowing banks to complain, via their national authorities, when competitors in another country don’t fully apply the rules.
“More work is necessary to overcome constraints to full implementation by individual national authorities and to address concerns by firms of an uneven playing field,” the FSB said in an e-mailed statement.