'Progress on banks' compensation, more needed'

Reuters / New Delhi March 4, 2011, 11:45 IST

Progress has been made on setting policies for compensation in the financial industry but more needs to be done, Deutsche Bank Chief Executive Josef Ackermann, who chairs an industry trade group, said on Friday.

Ackermann also said more "consistency and clarity" is needed in implementing regulatory proposals for the financial industry, which faces tighter capital controls and other rules in the wake of the financial crisis.

The Deutsche Bank chief also said that the United States economic recovery "appears to be stabilising," while "sustaining strong output growth under inflationary pressure is the biggest challenge," for emerging markets.

Many global banks have restructured investment bankers' pay packets with a large portion of overall compensation now being in deferred form, in response to political outrage and regulatory scrutiny.

"Significant progress has been made in improving compensation policies and practices, although more efforts will be needed," Ackermann said in a speech to a meeting of the Institute of International Finance (IIF), of which he is chairman.

Bonuses now account for just about 20% of overall compensation for bankers, compared with the pre-crisis days when up to 80% of total pay was in cash and stock bonuses.

Bonus curbs took effect in the 27-country European Union bloc last month, and go further than the G20 principles by setting in law-specific limits for cash elements and periods for deferral.

The United States has been slower to impose new standards, while major Asian financial centers such as Singapore and Hong Kong have moved to be in line with the G20's benchmark standards but gone no further.

In order to head off a repeat of the financial crisis that battered the global economy, banks will be subjected to tougher capital and liquidity standards under the Basel III rules set to be implemented from 2013.

The Group of 20 leading economies, meanwhile, aims to reach an agreement on extra safeguards for systemically important financial institutions (SIFIs) when they meet in November.

The world's biggest banks must have higher capital safeguards and supervisors will widen their net across the sector, finance ministers from the G20 leading economies said late last month.

Source: Business Standard