Parliamentary committee demands overhaul of bank bonuses

18 May 2009

The parliamentary Treasury select committee has called for a wide-ranging overhaul of bonuses and pay in the City after finding "serious flaws" in non-executive oversight, shareholder engagement and banks' relationship with auditors.

MPs condemned pay policies in the Square Mile as "fundamentally flawed", saying they are not aligned with the "interests of shareholders and the long-term sustainability of the banks".

West Dunbartonshire MP and committee chairman John McFall said: "Bonus-driven remuneration structures led to a lethal combination of reckless and excessive risk-taking."

The committee also said the Financial Services Authority's Turner Review had downplayed the role City bonuses played in the banking crisis.

It called for an overhaul of non-executive directors' oversight, saying that at present, many non-execs do not commit enough time to the role, do not have the necessary banking expertise and are drawn from too narrow a talent pool to be effective.

The committee's report also calls for an end to bankers "acting in a vacuum" at "ownerless corporations" by improving shareholder engagement with institutional investors and also proposes that auditing firms be prohibited from carrying out non-audit work for the same institutions.

The select committee's inquiry into the bank crisis took evidence from over 100 witnesses.

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