Banker pay 'requires significant reform'

25 October 2011

Significant reform is required regarding the way in which bankers in the UK are paid, it has been claimed.

Andrew Haldane of the Bank of England - which was founded in 1694, nationalised in 1946 and later gained independence in 1997 - suggested lenders should determine the salaries of senior executives based on returns on assets, as opposed to the current system that focuses on returns on shareholder equity.

The industry figure noted his model would have helped restrain the $26 million in wage packets seen in 2007 to just $3.4 million.

Speaking at the Wincott Annual Memorial Lecture in London, Mr Haldane said: "It would be a relatively small step for banks to switch from ROE [return on equity] to ROA [return on assets] targets in their capital planning and compensation."

He added that despite this action being easy to implement, the effects in remuneration and risk-taking would be huge.

By Asim Shah

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