City heavyweight calls for future-proof bonuses

By Simon Meads

LONDON (Reuters) - Up to 5O percent of executive bonus schemes should be based on delivery against future performance targets, London Business School professor and City veteran Sir Andrew Likierman said on Tuesday.

Speaking at a seminar on corporate governance organized by pensions industry body NAPF, Likierman said: "25 to 50 percent of the annual bonus of an executive should be based on their ability to deliver performance in the future."

Liekierman adds his voice to a growing clamour to unwind an executive remuneration system which is seen as a factor in exacerbating the global financial crisis.

The bonus culture, particularly in banks, has come under fire for encouraging risk-taking to boost short-term performance. A crackdown on bank pay has been a key talking point around the British government's bailout plan and bankers themselves are also rethinking the system [ID:nL4752354].

The Association of British Insurers (ABI) last week told Reuters it wanted EU-wide action to introduce bonus clawback clauses on executive contracts in the event of misstated accounts or deals that turn out to be loss-making.

Likierman cited a study by JP Morgan which showed that while 40 percent of the factors it defines as key business drivers look to future performance - such as branding, innovation and capital expenditure - less than 10 percent of remuneration is based on meeting forward-looking targets.

Likierman - currently a non-executive director at the Bank of England and at Barclays Plc. (BARC.L) - added that in order to be able to assess performance, remuneration committees must employ non-financial measures and judgment. He said the basis of these judgments should be detailed in companies' annual reports and highlighted insurance company Aviva Plc (AV.L), which he said had published an "extremely detailed" breakdown of executive targets, steps taken to achieve them and the level of bonus paid.

(Reporting by Simon Meads; editing by Elaine Hardcastle)