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New rules are “significant milestone” in overhauling City pay - IoD

24 Jun 2015

The Institute of Directors welcomed tough new pay rules for senior staff in the financial sector issued today by the City regulators. The Prudential Regulatory Authority (PRA) and the Financial Conduct Authority (FCA) aim to discourage irresponsible risk-taking at banks and other financial institutions by forcing them to defer bonuses for longer periods, and giving firms greater power to clawback pay from bosses in cases of serious mismanagement. Oliver Parry, Senior Corporate Governance Adviser at the IoD, said:

“Today marks a significant milestone in overhauling pay practices in the City following the crisis of 2008. The regulator’s instruction to boards to defer variable pay for up 10 years, with the possibility of clawing it back when executives have clearly damaged the firm, is particularly welcome, as is the prohibition of bonuses for non-executive directors. In addition, it is clearly right that the senior management responsible for collapses at banks which lead to taxpayer bailouts should not receive bonuses. The era of rewards for failure along the lines of Fred Goodwin must be buried once and for all.”

“The package of measures outlined today will ensure a greater alignment between the interests of risk-takers within the firm and the longer term of interests of the firm and its stakeholders. There must be an end to excessive exit payments for executives who have failed to create value for investors, or who have damaged the reputation or long-term prospects of the organisation. Undeserved ‘golden handshakes’ have undermined the legitimacy of the entire financial services sector and we must ensure that this does not happen again.”

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