Remuneration teams within banks and other financial institutions should have more power to scrutinise staff reward, while bonuses should be paid to employees over a five-year period without being capped, the government-commissioned Walker Review has recommended.
Reward and pay packages for staff working within financial institutions should also be far more structured with ‘appropriate linkage to performance’, and a code of best practice should exist for the remuneration committee, the review stated.
A move away from offering high-performing workers short-term cash incentives has been supported by Dr Vicente Cunat, lecturer in the finance department at the London School of Economics (LSE), who said that reward must have a long-term focus.
“The different items that make up reward should start to change, and while high pay will remain, there will be more long-term options, such as shares that staff cannot sell until after retirement, for instance,” he explained.
Dr Cunat also backed the recommendation not to cap bonuses for banking staff, claiming that it could adversely affect an employer’s ability to recruit the best people for the job.
He added: “I don’t think they [caps] are necessary – they restrict employers from being able to attract the person that they want to attract and could backfire.”
The British Bankers’ Association (BBA) has welcomed the review, also stressing the need for risk control and long-term reward structures for workers.
BBA chief executive Angela Knight said: “It is about ensuring leadership by boards and proper risk controls across the business in both banks and other financial institutions, and it is also about getting the debate on pay packages into the right place by ensuring reward structures look to the long term.”
TUC general secretary Brendan Barber said: “There is much to welcome in this review, in particular the call for more voting disclosure by fund managers and investors which will help pension trustees and unions to find out how workers’ pensions are being invested.
“We support moves to curb the short-termism and excessive risk-taking behaviour that bankers’ remuneration has encouraged. But by focusing solely on risk, the review has not considered the wider problems with bankers’ pay. The growing gap between executive and employee pay has a damaging impact on staff engagement, and has created a new class of super-rich that float free from society.”