The UK financial watchdog today laid out plans to curb risky pay practices in banks but dropped some of the tougher measures that had been proposed.
The Financial Services Authority (FSA) said banks should spread two-thirds of the bonuses of senior employees over three years.
But its code of practice, to be introduced next year, excludes specific measures on deferred bonuses as well as the linking of payouts to the performance of banking groups as whole.
The specific recommendations in the FSA's consultation in March were deemed 'too prescriptive' by the banks which replied. Respondents said the proposals went further than those put forward by other regulators and 'would have adverse implications for the UK as a financial centre'.
'There was general opposition to the mention in the guidance that it would be good practice for at least two-thirds to be deferred,' the watchdog added - although the FSA has retained the figure in its guidance.
Banks pointed out that increased deferral reduces the perceived value of a bonus to the individual - so total packages could go up, the FSA added.
'One respondent urged us not to ignore the fact that short-term discretionary awards can be a good management tool to encourage the right behaviours and to motivate staff,' its policy document said.
The FSA previously said it wanted firms to operate a 'fully flexible' bonus policy. It said would treat the ability of banks not to pay bonuses in a year in which the firm makes a loss as evidence of this.
But the banks said 'losses should not necessarily result in zero bonuses' as firms want to reward those who were not responsible for the loss, such as junior staff, or those starting new businesses which are not yet profitable.
