Reforming remuneration practices – FSA does not go far enough says Consumer Panel

12 August 2009

The Consumer Panel welcomed the FSA’s clear statement published today about the need for managers’ bonuses to be awarded in a way which is “consistent with and promotes effective risk management”. However, the Panel does not think the Remuneration Code goes far enough.

The Panel is concerned that the Code does not require any evidence that bonus policies will reflect long term value being added to the business by managers. The Code does not tackle one of the major problems of the last decade – when banks announced profits which caused bonuses to be paid to senior directors and managers based on the apparent performance of the company. However it subsequently became apparent that in some cases more profit had been taken than was reasonable. Shareholders do not have access to all the information needed to reach an informed view about whether the bonus levels for senior management are appropriate. It is hard to see how shareholders will be able to exercise more effective control over remuneration policies in the future than they have in the past. It is therefore important that the FSA takes steps to ensure that bonus schemes are not leading to unsustainable profits being taken.

Adam Phillips Chairman of the Financial Services Consumer Panel said:

“The FSA’s introduction of the Remuneration Code is a big step towards reining in the excesses of the past, but it fails to effectively address the issue of senior managers’ incentives being linked to the performance of the business. Huge bonuses are being paid at the expense of real long term value being added to the business, a problem which Lord Turner clearly identified in his report on the banking crisis and as ever, it will be consumers that have to foot the bill.”

 

Notes to editors

1. The FSA established the independent Financial Services Consumer Panel in December 1998 to advise its Board on the interests and concerns of consumers and to report on the FSA’s performance in meeting its objectives.  The Consumer Panel has statutory status.  
   

2. The emphasis of the Panel’s work is on activities that are regulated by the FSA, although it may also look at the impact on consumers of activities outside but related to the FSA’s remit. What we're doing for consumers explains more about the work the Panel is doing.
   

3. The Consumer Panel brings together a wide range of relevant experience. This includes financial services regulation, working with vulnerable consumers, consumer protection, consumer education, front-line money advice, legal expertise, competition policy, public policy analysis, market research and media.
   

4. There are currently ten members of the Panel as listed below (for further information on individual members, see Who is on the Panel)

   Adam Phillips (Chairman)
   Kay Blair
   Michael Chapman
   Stephen Crampton
   Caroline Gardner

   Tony Hetherington
   Nick Lord
   David Metz
   Lindsey Rogerson
   Carol Stewart