Banks need to do more to refine compensation practices, report shows

6 September 2010

Banks still need to do more to refine their compensation practices and the way in which bonuses are awarded, a new report has revealed.

A study by the Institute of International Finance (IIF) showed that work is still required to improve certain areas surrounding payment processes including disclosure and the way in which bonuses are related to risk.

Although “substantial” work has already taken place in risk adjustment, deferred payouts and governance, the report explained that less than half of the 37 financial services firms questioned publish information on the way in which they determine the size of their bonus pools and on the processes behind selecting compensation for the highest earners.

Charles Dallara, IIF managing director, said: “This is an encouraging report, but it shows that there are remaining challenges. For its part the industry needs to continue its efforts to resolve outstanding technical and managerial compensation challenges in order to reduce excessive risk taking and so contribute to a more resilient financial system."

Further findings from the report showed that almost all firms questioned now integrate risk management involvement in their financial award scheme, a figure which is almost twice that seen in 2008.

The institutions interviewed in the IIF’s survey accounted for 70 per cent of wholesale global banking revenue.

By Jim Ottewill

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