Swiss regulator sets pay rules

12th November 2009, Comments 0 comments

FINMA on Wednesday imposed a delay on payment of bank bonuses.

Geneva -- Switzerland's financial regulator imposed a delay on payment of bank bonuses but rejected a pay cap, under new rules published on Wednesday.

Big bonuses for senior executives and traders became highly controversial after the financial crisis, and led to charges that they helped cause the crisis.

There is international debate about whether and how such bonuses should be moderated, while some banks are now paying out big bonuses as business recovers.

In a notice which takes effect on 1 January 2010, the Swiss Financial Market Supervisory Authority (FINMA) asks banks to publish their payment structures for all employees, not just senior management as under current rules.

"Remuneration schemes should not create incentives to take inappropriate risks and thereby potentially damage the stability of financial institutions," said FINMA.

It said that financial institutions should use "sustainable criteria" when determining bonuses.

"This is to prevent employees focusing on targets that have little to do with the sustainable success of the institution or that do not take into account the risks entered into," FINMA added.

"In addition, persons in the higher levels of the hierarchy in particular, ie, those with significant responsibility for risk or with relatively high total remuneration, are to receive part of their remuneration with deferred effect and thus in a way which is linked to risk," it said.

Yet it also rejected calls to impose a complete cap on bonuses.

"From a legal perspective, FINMA is not authorised to restrict the remuneration paid to employees. Indeed this would not be a sensible option.

FINMA pointed to "large differences" in the Swiss financial services industry that would make a single arrangement "almost impossible" and problems implementing a cap in firms with international operations.

At the same time, the regulator acknowledged that allowing the market to determine appropriate wage levels was not appropriate, as shown during the financial crisis.

In order to "strengthen market discipline," it was therefore requiring banks to disclose their payment structure for all staff.

Ahead of FINMA's notice, Switzerland's two biggest banks, UBS and Credit Suisse, have already published revised compensation structures.

Credit Suisse said in October that it would revise its payment structure to include cash and share-based bonuses that would be paid out after three and four years.

The value of these assets will be adjusted downwards if the business area of the employee is not profitable, according to the bank.

UBS has implemented a three-year deferral period as well as a repayment structure for all executive cash awards for 2009 and beyond.

Beyond Switzerland, leading economies are also in the process of establishing rules for compensation in the financial sector, after a summit of the G20 group of leading economies pledged in September to confront the issue.

Financial centres such as Hong Kong have since revealed new rules on the issue. On 2 November, the US Federal Reserve met heads of the biggest banks to discuss proposals to limit incentive pay and bonuses.

AFP / Expatica


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