Plans to force UK banks to reveal high earners

UK banks must disclose how much they pay top employees, a UK government sponsored report recommended today in a bid to quell public anger over 'bonuses as usual' in a sector shored up by taxpayer bailouts.

The report from David Walker, the former chairman of Morgan Stanley bank's international unit, lays down 39 steps to improve how banks are run.

Although touted as the toughest set of pay rules in the world, they stop short of actual caps or naming individuals, representing some respite for banks who yesterday were also cheered by a UK court victory over fees.

Board members should spend more time on the job and pay be closely monitored. Shareholders also have a duty to scrutinise how their companies are run, the report says.

Britain had to shore up its financial sector hit by the credit crunch. It nationalised or took major stakes in several banks such as Northern Rock, Lloyds and RBS.

Walker published his recommendations in draft form in July but has toughened up sections on pay as policymakers warn banks there can be no return to 'business as usual' of unjustifiably large bonuses.

He also wants the recommendations to be implemented in law, rather than on a 'comply or explain' basis outlined in July.

'There will still be public anger over bank pay and bonuses and that's understandable,' Walker said. 'But this disclosure is not designed to appease the great British public. It is designed to deal with the problem that these high end people are capable of influencing the risk profile of banks and it is unsatisfactory that shareholders and remuneration committees have so far focused almost exclusively on executive board remuneration,' he added.

The UK government said it will introduce all of Walker's recommendations as soon as possible. Last week it published a draft financial services bill with provisions to implement the review.

'Sir David's proposals are the blueprint for how banks must be run in the future,' Britain's Finance Minister, Alistair Darling, 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,' Darling said.

The UK's Financial Services Authority today said that it has appointed five new senior advisors to help develop better governance at financial institutions.

Big listed banks and even unlisted firms such as building societies should report from 2010 all employees and board members whose annual packages top £1m sterling. Disclosure would be in bands, starting at £1-2.5m, with a second band at £2.5-5m, with bands in £5m lots thereafter.

In July, Walker had recommended disclosure of pay higher than the median of executive board members - which would typically be around £2m. Remuneration for each of the unnamed employees should be broken down along business lines, salary, cash bonus, deferred shares, performance-related long-term awards and pension contributions.

UK-based subsidiaries of foreign banks should also make similar disclosures.

The report also recommends that all big banks operating in Britain abide by rules on pay structures that are tougher than those agreed by the G20 group of top countries in September and which major banks in Britain have already signed up to.

'These recommendations on pay are tougher than anywhere else in the world. But I am not imposing these recommendations on UK banks at this moment of time - they have to implement these recommendations by 2010,' Walker said.

The report says that at least half of an employee's variable pay would be in the form of long-term incentives such as shares that vest over a period of up to five years, two years longer than the G20 rules.

No more than a third of a bonus can be paid in the first year and pay can be clawed back if it was unmerited but some fear being too tough will put UK banks at a disadvantage.

Some observers blame the bonus culture of the world's two pre-eminent financial sectors - the City of London and Wall Street - for encouraging excessive risk-taking, which helped to tip the global economy into chaos.

Britain spent billions of pounds bailing out some of the country's biggest institutions including Royal Bank of Scotland and Lloyds Banking Group at the height of the financial crisis.