The Walker Review of corporate governance in the banking sector has made a series of recommendations on remuneration which are designed to curb excessive pay policies in the financial services sector.
The review, conducted by David Walker, looked at banks’ board quality, pay policy, risk management procedures and the role of shareholders.
In the review, published 16 July, Walker proposed that non-executives should have a direct say in deciding pay arrangements for top earners. It also suggested at least 30-36 days per year should be allocated to scrutinise the behaviour of top executives working at major banks.
The review also recommended the remuneration committee should liaise with the board risk committee to check risk assessments of relevant remuneration policies, in particular, the risk adjustments to be applied to performance conditions.
Another recommendation said at least half of variable remuneration should be in the form of long-term incentives and should only vest with performance conditions. Half of this amount should vest after three years, with the balance (although not subject to further performance conditions) vesting at the end of five years.
The other half of the variable remuneration may be paid by reference to performance within a single year, but only one third may be paid out at the end of that year. The balance must be deferred so that the full bonus is not paid out until the end of year three.
A five-year retention period for 25% of the overall intended variable remuneration for a year has also been proposed. Walker accepts that the proposals may cause basic salaries and other non-variable remuneration to rise but cautions remuneration committees to ensure this upward pressure does not become excessive.
There is now a period of consultation on the points raised in this report until 1 October and a final version of the proposals will be issued in November.