Thursday, July 16, 2009

Executive compensation passé? United Kingdom doesn't think so.

Last week AIG announced it was making bonus payments for various employees' 2008 performance. Treasury spokespeople commented about Compensation Czar Feinberg's approach to the matter, but given his 2009 appointment, any intervention he may attempt would be considered retroactive and inappropriate. AIG's announcement garnered little attention, as did the news of Goldman Sachs' intention to pay higher executive compensation in light of the firm's recent earnings release.

And so Politico wonders, "Where's the outrage?" In the United Kingdom, apparently. United Kingdom Prime Minister Gordon Brown has announced the U.K. government will adopt laws that will withhold bonuses paid to traders and executives, for a period of up to five years. In fairness, the move does echo public statements made by U.S. Treasury Secretary Tim Geithner and House Financial Services Committee Chair Barney Frank (D - Mass): alter the incentivizing structure of finance professionals to temper their risk-taking; to promote a more long-term approach to finance. It is also reported Brown supports proposals to limit trader compensation to amounts earned by the bank's board members, and to compel banks to publicly disclose trader compensation (though in anonymous "bands"). Although the U.K. committed public funds to assist a handful of financial actors in the recent economic snap - $ 2.3 trillion - the laws and proposals would be applicable to all financial institutions based in the U.K., as well as foreign-owned firms with operations in Britain.

The proposals are contained in a report commissioned by the U.K. government and written by former executive director of the Bank of England, Sir David Walker. Among the internal governance suggestions Walker makes: change the culture of the banking industry by promoting non-executive directors. These non-executive directors, screened by the British regulator (FSA), would chair the banks' risk committees and be a counter weight - in American parlance, a check and balance - to the banks' CEOs.

Walker will continue his investigation and analysis through the summer and fall, submitting a final November 2009 report. There is no reported timeline for Brown's anticipated bonus hold-back legislation.

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