U.K. banks should dismantle sales-based pay incentives and provide greater disclosure of the compensation paid to employees, David Walker, Barclays Plc’s chairman-elect, told a Parliamentary committee today.
“The problem I think that is most serious is not so much levels of remuneration as the gearing of remuneration to revenue,” Walker, 72, said at a hearing of the Parliamentary Commission on Banking Standards, formed in the wake of the Libor scandal.
British regulators said last year that consumers may receive as much as 9 billion pounds ($14.3 billion) in compensation as a result of improper sales of loan insurance. Incentive programs for employees are likely to drive people to mis-sell to meet targets and receive bonuses, the Financial Services Authority said this month, following a review of 22 firms.
Walker revisited his 2009 recommendation that banks should publish the number of employees earning more than 1 million pounds and split them into pay bands to include bonuses and pension contributions. Walker reviewed the link between pay and risk-taking and whether directors had done enough to prevent the decline of the financial industry for then-Chancellor of the Exchequer Alistair Darling.
“Certainly in the investment banks, the executive board members were commonly paid much less than the traders, which is why I recommended, and I hope we’ll soon have progress on this, that there will be made available to shareholders bands of remuneration of the top 50, 100 or whatever,” Walker said today.
Barclays, the second-biggest U.K. bank, agreed in June to pay 290 million pounds in regulatory fines for rigging the London interbank offered rate, spurring the resignations of Chairman Marcus Agius, Chief Executive Officer Robert Diamond and Chief Operating Officer Jerry Del Missier. The U.K. Serious Fraud Office opened a criminal probe into Libor-rigging in July.
Free-in-credit checking accounts in the U.K. offer a “lack of fairness” to people in debt because they are paying for the services of people in credit, Walker said. They also encourage banks to sell other products to customers that they might not need, Walker, who becomes chairman of Barclays on Nov. 1, said.
If so-called free banking is to be abolished it must be orchestrated by government because a bank acting unilaterally would be disadvantaged, he said.
The Parliamentary Commission on Banking Standards, led by Andrew Tyrie, will develop proposals for legislation by Dec. 18., following the probe into governance, transparency and conflicts of interest.
-- With assistance from Robert Hutton in London. Editors: Jon Menon, Keith Campbell