FSA opens consultation on new pay transparency rules

The Financial Services Authority (FSA) today opened a consultation on the implementation of forthcoming new rules governing the disclosure of pay and bonuses in the finance sector.

Under the Capital Requirements Directive, which comes into effect in January, financial services firms will have to release details of their pay and bonus policies on an annual basis.

The FSA is consulting on exactly what should be disclosed, such as the decision-making process, the link between pay and performance, key characteristics of remuneration systems and the criteria used for assessment.

In the consultation document, the FSA proposes that the top 26 institutions should give a breakdown on how much of bonuses are paid in cash or shares.

Banks will not have to name top-earning employees, apart from directors, by name or title but will have to provide aggregate information on pay, broken down by senior management and other risk-taking groups such as traders, the consultation says.

Other financial services firms will have to disclose more general information on their remuneration, on a tier-based system categorising companies by their size or systemic importance.

Tom Gosling, reward partner at professional services firm PricewaterhouseCoopers, said: “The Treasury has passed the disclosure baton to the FSA and the result has been a less onerous regime than originally feared.

“The consultation sets out largely sensible disclosure requirements relating to banks’ remuneration policies for senior management. The information should help shareholders make informed judgments about how remuneration takes account of risk in banks. The proposals do not include some of the more prescriptive elements of previous proposals, such as disclosure by pay bands. This should help prevent the unintended consequences that can sometimes follow pay disclosure, for instance pay ratcheting.”

Also this month, XpertHR spoke to executive pay experts about the various attempts to rein in high pay and bonuses in the finance sector (subscription required) over the past two years and what the future holds.

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