With Exec Pay Standards, Level Field Possible

By Heather Landy


When it comes to attracting executive talent, the playing field between the major banks that have accepted taxpayer money and those that have not — in the United States and in most major financial centers abroad — may be levelling. At last week’s Group of 20 summit in London, the international body agreed on principles governing executive compensation that would apply to banks both foreign and domestic, regardless of whether a bank has obtained taxpayer assistance from government programs and thus been forced to restrict compensation. “To the degree all banks are under these same rules, those concerns are abated,” said Karen Shaw Petrou, managing director at the policy advisory firm Federal Financial Analytics. The forum recommended that boards formulate pay policies independently and take responsibility for monitoring their effectiveness, and it said bonus pools should be linked to overall company performance and shrink or disappear when a company does poorly. The forum also encouraged the use of “claw-back” provisions for bonuses and discouraged the use of golden parachutes, multiyear bonus guarantees and employment contracts that compensate new hires for unvested equity they may have to forfeit at their old companies. How these principles will be carried out in each Group of 20 country may differ. “There’s plenty of room for interpretation,” Petrou said. “But our bank regulators and the Treasury will definitely plan for this guidance. They played a strong role in developing it.”