Banker Pay Rules Aren’t Being Applied Evenly, FSB Says

Barclays Plc Chief Executive Officer Robert Diamond
Barclays Plc Chief Executive Officer Robert Diamond agreed to forgo about 11 percent of his total compensation until the bank improves profitability in a bid to placate investors opposed to his compensation package. Photographer: Jerome Favre/Bloomberg

International efforts to enforce a common set of rules on banker pay may be hampered by diverging national positions on which staff should be covered by the measures, the Financial Stability Board said.

There are “important differences” in how nations have implemented the curbs, which were set by regulators in 2009 to reduce excessive risk taking, the FSB said yesterday in a report on its website. These include a potentially “wide variation” in the range of employees that authorities target.

“Member jurisdictions have made different choices regarding the institutions and employees that are covered,” according to the report, drawn up for a meeting next week of the Group of 20 nations. Divergences exist even within the 27-nation European Union, the FSB said.

Public outrage and shareholder rebellions have forced some banks this year to retreat from their initial pay plans. In a bid to placate investors, Barclays Plc Chief Executive Officer Robert Diamond agreed to forgo about 11 percent of his total compensation until the bank increases profits. In a non-binding April vote, Citigroup Inc. shareholders voted to reject that bank’s executive pay plan.

“It is unlikely that we will reach a globally united front on this issue,” Richard Reid, research director for the International Centre for Financial Regulation in London, said in an e-mail. “Not all countries share the same enthusiasm for such curbs, indeed some may see this as an opportunity to attract top talent.”

Brazil, Australia

While in Brazil only members of the board of directors and executive officers are covered by the curbs, the FSB said in the report, in Australia they are applied to all employees whose actions might “affect the financial soundness of the institution” and whose pay is significantly performance-linked.

European Union lawmakers have called for the bloc to insert tougher bonus curbs this year in legislation to implement bank-capital rules, including a ban on awards that exceed fixed pay.

Global regulators in 2009 called for all “material risk takers” at banks to face compensation restrictions including deferral for at least three years of 40 percent of bonus awards, and a requirement that over 50 percent of payouts be in shares or similar instruments.

The measures are part of efforts to prevent a repeat of the financial crisis that followed the 2008 collapse of Lehman Brothers Holdings Inc. The FSB brings together finance ministry officials, central bankers and regulators from G-20 countries to coordinate rule-making.

The board also said banks are still not doing enough to link pay to performance as they “do not want to lose key personnel.” Spanish regulators told the FSB that they had seen evidence of banks raising their fixed salaries to get around bonus rules.

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