Banks forced to disclose number of £1m employees: Walker report final

Report also lays out recommended bonus vesting periods.

The UK is to force all banks, including the subsidiaries of foreign banks, to disclose the pay of their highest earners under proposals put forward by the Walker Review. Former Morgan Stanley chairman Sir David Walker has made wide-ranging proposals on total pay, bonuses and incentives in a 180-page report commissioned by the government in the wake of the financial crisis. Among them is a call for new regulations to force banks operating in the UK – whether local or foreign – to disclose how many staff earn more £1m (€1.1m) a year. Given the “very significant role of major non-UK-listed banks in London” Walker said it was “appropriate and necessary” for broadly comparable pay disclosure by non-UK banks. Banks and entities such as building societies would have to disclose in bands how many “high end” employees’ total pay falls between £1m-£2.5m, £2.5m-£5m and in £5m bands thereafter. This is the only Walker recommendation that requires new primary legislation and means pay disclosure moves beyond executive directors. Walker has also recommended that the role of remuneration committees within banks is expanded to cover firm-wide remuneration policy. Such committees will also be given direct responsibility over all highly-paid employees. Walker said: “With expectation, guidance and, ultimately, pressure from major shareholders, the remuneration committee, in its enlarged role, should ensure that remuneration structures for all such “high-end” employees are appropriately aligned with the medium and longer-term risk appetite and strategy of the entity; and should be a key and mature counterbalance to any executive pressure to boost short-term remuneration provision in response to a perceived threat of competitor pressure.”Walker also called for half of bankers’ variable pay to be in the form of long-term incentives. He wants vesting to be subject to performance – with half of the award vesting after not less than three years and the remainder after five years. Short-term bonus awards are to be paid over a three-year period with not more than one-third in the first year. Walker said: “Little attention appears to have been given in many cases by relatively uninformed shareholders to the remuneration of senior executives which, for many, was significantly in excess of the executive board median.” He noted concerns that the pay disclosures could mean a “first-mover competitive disadvantage” for UK banks but said this tends to be exaggerated, albeit undesirable. He said he hoped for a “satisfactory degree” of international convergence with the US and Europe on pay during the first half of next year.
Commenting on the report, The British Bankers’ Association said: “The banks have heard the call to publish this information, but they also see the risk in doing so, given that too many countries show no sign of following suit. The UK is a large international centre and it is essential that other countries make the same changes at the same time.” Walker, who made 11 recommendations on pay, resisted pressure for “high end” staff to be named. He found no evidence that this would yield any enhancement in the governance of risk in major institutions.The government said its new Financial Services Bill would introduce regulations forcing pay disclosure. It said: “We will issue draft regulations for consultation in the New Year and bring them into force as soon as practicable after enactment of the Bill. This will force disclosure for the 2010 performance year.”
Link to Walker Report