Cautious welcome for Walker review
27 Nov 09
Although some commentators have complained it does not go far enough, the Walker report into banking remuneration and governance has been broadly welcomed by advisers and City institutions
John Liver, regulatory and risk management partner with Ernst & Young, said he expects to see major changes in the way banks reward their top earners. He said: “Walker has listened to concerns by recognising different business needs and the need for flexibility. But the recommendations are still a significant raising of the bar.”
He added: “It’s likely that the New Year will bring a very different bonus environment, with banks moving away from large cash payments, instead linking awards to risk management effectiveness along with enforced public disclosures for big earners... we expect to see sweeping changes in the way that risk management is reported and evidenced, as non-executive directors and board members respond to the recommendations for greater transparency. There will also be explicit linkage of risk management to the remuneration policy affecting senior staff.”
Jon Terry, partner and head of reward, PricewaterhouseCoopers LLP (PwC), commented: “The recommendations on remuneration have the right focus and reinforce best practice principles. Since the draft proposals were published, there have been some sensible concessions... however, uncertainty remains for those regulated organisations not currently subject to the FSA Code as to the extent to which it will apply to their businesses – clarification on this will be welcome.”
Walker may represent the last chance for the financial sector to avoid much tougher regulation, Terry said. As he put it: “The current landscape is such that voluntary adoption of best practice principles may be the only way to avoid further prescriptive legislation – firms need to embrace this as a last opportunity to show the ‘comply or explain’ approach to governing executive pay works. Otherwise, we risk losing the ability to use executive pay, responsibly governed, as a force for good.”
The CBI warned that Walker’s findings should not be applied across the board without considering the different circumstances of businesses in different sectors. John Cridland, CBI Deputy Director-General, said: “We are concerned about the risk of ‘spill over’ from the Walker Review. Banks play a unique role in the economy and have particular systemic risks associated with them. They therefore require different rules, and the Walker proposals look broadly sensible.
“However, it would be wrong to burden all companies with extra, inappropriate regulations when they have played no role in the financial crisis. Listed companies are already covered by the Combined Code, and there has been no widespread failure of corporate governance beyond the few, specific examples in the banking sector.
“Applying rules for banks to firms that bake bread would be clumsy and misguided, especially in a downturn when we need companies to pull us out of recession.”
The Chartered Institute of Personnel and Development (CIPD) broadly welcomed the walker proposals but warned that the debate over pay and bonuses should not distract from other aspects of corporate practice. Charles Cotton, Policy Adviser at the CIPD, said: “We are concerned that the focus on reward practices should not be allowed to hide the need for a far wider focus on the other risks that exist around how people are managed.
“Risk committees need to look beyond just pay and bonuses, to review whether company culture, performance management and appraisal, talent management, leadership and organisational development are also sources of potential organisational hazard.”
The Liberal Democrats said the Walker report amounted only to “a few small steps towards transparency.”
Liberal Democrat finance spokesman, Vince Cable said: “[Walker] only deals with remuneration over a million pounds when it should relate to all pay above the level of the Prime Minister. More seriously, transparency should relate to individuals in the way that it already does to company directors.
“MPs and senior BBC executives have rightly had their pay packages exposed to public scrutiny but bankers also enjoy a taxpayer guarantee.
There is no justification for withholding information on individual high end employees from the public or shareholders.”