Continental Conflicts Arising Over Banker Pay
The majority of banking executives oppose government intervention in setting bank compensation parameters, according to a bank executive survey conducted from Nov. 17-Dec. 3, 2009 by US audit firm Grant Thornton. The sentiment, however, is not as greatly embraced abroad. The survey found 96% of 246 respondents do not agree the government should play a role in determining compensation, while 61% do not think a requirement to evaluate compensation will reduce excessive risk-taking. A majority of bankers - 58% - said increased government involvement will hinder the ability to recruit and retain good executive management. Only 21% of respondents plan to change their pay option over the next 12 months. More than half, or 52%, of bank executives said they intend to make changes to their firms' enterprise risk management (ERM). A higher share of larger banks - 59% - than of smaller banks - 47% - plan on changing ERM processes. Only 33% of respondents said they intend to implement new risk management programs, and 13% plan to add staff to address a growing focus on ERM and corporate governance. “With new Federal Reserve Board (FRB) initiatives and new regulatory guidance in place, banks will need to conduct in-depth reviews of their incentive compensation plans to ensure that their plans don’t result in unnecessary risk and impair shareholder value,” said Henry Oehmann, National Executive Compensation Services director for Grant Thornton. Oehmann added: “At the same time, TARP [Troubled Asset Relief Program] regulations, the FRB guidance and new SEC [Securities Exchange Commission] disclosure rules have heightened the importance and public disclosure requirements regarding risk management in executive and incentive pay. While most of the banks surveyed have not noted this increased role, the federal regulators clearly see ERM as a key factor in executive and incentive pay practices.” Executives at London-based global financial services firm Barclays Bank are already taking steps to reign in executive pay practices, with executive directors John Varley and Robert Diamond Jr voluntarily declining to take any bonus for 2009. "We know that the subject of banks and, in particular, the subject of bankers' pay, is a matter of intense interest and I would say intense concern to lots of citizens of this country [the United Kingdom] and countries all around the world," Varley said in a filmed interview with Cantos, a video media production service. "I think it's important in those circumstances, and recognizing also that governments have helped the banking system as much as they have over the course of the last couple of years, I think it's important that banks and bankers show that they understand," Varley said, according to a transcript of the Cantos interview. "That they send a signal that they recognize the issue, they recognize why it's a matter of concern and they behave accordingly. That's what we're doing." He acknowledged executive pay is becoming more and more of a global issue, fueled by three years of financial and economic distress that damaged the "bond of trust" among banks, customers and stakeholders. British Prime Minister Gordon Brown has been pushing for a global tax on banking transactions to go along with the UK bonus tax on bank executives. "I can tell you also that I am working very hard with international colleagues -- including talks this week at the European Council -- to find agreement on a global bank levy to make sure that in the future the contribution banks make is properly captured," Brown told the media over the weekend. European Union (EU) finance ministers are reported by the trade media to be teaming up in opposition of a recent proposal by President Barack Obama to limit the size of banks and the scope of their trading activities. Called the "Volcker rule" after former Fed chair Paul Volcker, would prohibit banks from owning, investing in or sponsoring hedge funds, private equity funds or proprietary trading operations for their own profit and other reasons unrelated to serving customers. Obama also proposed a "responsibility fee" that would tax large financial institutions that received government funds through TARP. The fee would apply to the largest US firms for at least 10 years, until all bailout funds are repaid. The EU met yesterday to address recent initiatives to reform the US financial sector, according to Richard Reid, director of research at the International Centre for Financial Regulation (ICFR). "President Obama’s backing for the so-called 'Volcker' rule threw the evolving international consensus on the regulatory response to the financial crisis into doubt," Reid said in commentary Tuesday. "The Obama proposals which in spirit at least, seemed to point in the direction of a separation between commercial and investment banking were not universally welcomed in Europe." Write to Diana Golobay.