UK government tackles bonuses in bank rescue package
LONDON (Reuters) - Britain made strides to curb bank bonuses and executive pay as part of a wide-ranging rescue package for the financial sector on Monday, which included a slew of departures of top executives.
The move to slash executive payouts, following a public outcry against the City bonus culture, came as new guidelines on remuneration were outlined by Britain's financial watchdog.
"There is widespread concern that inappropriate remuneration schemes... may have contributed to the present market crisis," said Hector Sants, Chief Executive of the Financial Services Authority (FSA) in a letter to CEOs.
The FSA called for bonus policies to be reviewed immediately. "If the policies are not aligned with sound risk management, that is unacceptable," it said.
Britain said on Monday it would invest up to 37 billion pounds in Royal Bank of Scotland (RBS.L), and the proposed merged entity of HBOS HBOS.L and Lloyds TSB (LLOY.L), making the state potentially the largest shareholders in the banks.
The government has also proposed reform of the financial institutions to crack down on a remuneration culture that has focused on short-term risk.
Prime Minster Gordon Brown said banks need to set up "a system of remuneration founded on long-term success, not short-term irresponsibility."
The FSA is proposing a series of good-practice measures, including a higher fixed-income salary and remuneration in shares or deferred bonuses that are linked to the performance of the business.
Companies are likely to offer bonuses in the form of shares over cash, said analysts, and may base remuneration on profits, rather than revenue.
Shareholders are likely to back the clampdown.
"Without question, there's going to be downward pressure on bonuses from shareholders," said a spokesman at PIRC, a body that advises institutional shareholders such as pension funds.
BANKS ACT
RBS said it is issuing a blanket ban on bonuses for its board members this year in compliance with the government's aim to curb compensation for executives, and bonuses in 2009 will be paid in shares.
Lloyds TSB is asking its executives to receive bonuses this year in shares, which may not be sold until December 2009.
Executives also turned down potential severance packets on Monday. Outgoing RBS chief executive Fred Goodwin and departing HBOS CEO Andy Hornby and Chairman Dennis Stevenson all said they would forgo contractual pay-offs when they leave. Continued...
