The Bank for International Settlements (BIS) mandated Basel committee is debating new guidelines for bonus payouts to bankers, after exorbitant bonuses created worldwide furore. Banks should disclose how an individuals pay benefits the firm’s performance and long term profitability.
In a consultative document released by the Basel Committee for Banking Supervision on Monday, new proposals have been mooted requiring banks to disclose both qualitative and quantitative information about their payout practices. Comments can be submitted till February 25, 2011.
“The Committee believes that these additional Pillar 3 requirements on remuneration will support an effective market discipline and will allow market participants to assess the quality of the compensation practices and the quality of support for the firm’s strategy and risk posture”, the report said.
Banks also need to disclose the total amount of deferred compensations due for the year along with the amount and the number of guaranteed bonuses paid for the year.
Goldman Sachs, in an effort to streamline long term bonus payout plan has introduced a plan where the board is authorized to pay cash and stock bonuses over regular compensations, but lets the board claw them back if the employee takes too much risk.
The scheme is supposed to reward those employees who ensure the bank’s long term profitability and avoid taking unnecessary risks.