GENEVA – Regulators on Monday proposed that banks make more detailed disclosures of their remuneration policies, including how they assess performance and take risks into account when implementing pay structures. Fernando Vargas, chairman of the Basel Committee’s task force on remuneration, said the new requirements “will allow market participants to assess the quality of a bank’s compensation practices and the incentives towards risk taking they support.”
“These requirements should also contribute to promote greater convergence and consistency of disclosure on remuneration,” added the Spanish central banker. In the proposal, which is open for consultation until February 25, 2011, the committee suggested that banks outline how they link performance to remuneration through the disclosure of the main performance indicators for individuals and how pay is tied to bank-wide and individual performance.
In addition, it calls for descriptions of measures taken by a bank to assess risks in implementing pay policies.
The amounts and number of bonuses, severance payments and sign-on awards should also be detailed, said the committee. Bank pay policies came under the spotlight during the financial crisis after it emerged that some employees had been taking excessive risks in a bid to chase bigger bonuses, leading to disastrous consequences for the banks.
