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Date: Monday 13 Oct 2008

LONDON (ShareCast) - The Financial Services Authority has urged banks to “consider carefully” their pay policies as the government today scrapped boardroom bonuses at some of the country’s biggest lenders.

There will be no payout for bosses at Royal Bank of Scotland, Lloyds TSB and HBOS this year after the Treasury agreed to pump £37bn into the hard-up trio.

In a statement released earlier today, the government said it will closely scrutinize remuneration of senior executives. Pay policy going forward will be reviewed and "linked to long-term value creation, taking account of risk; and restricting the potential for 'rewards for failure".

“I urge all firms, whatever the timing of their remuneration reviews, to consider carefully their remuneration policies, especially in light of recent market developments,” said FSA chief executive Hector Sants.

“If the policies are not aligned with sound risk management, that is unacceptable,” he added. “Immediate action will be required to change the policies.”

The City watchdog said both the Counterparty Risk Management Group and International Institute of Finance have identified remuneration structures as one of the possible driving forces behind current financial crisis.

Sants agrees, believing that wage structures of firms may have been “inconsistent with sound risk management”, encouraging staff to pursue “risky policies”.

“We would encourage firms to review compensation policies throughout the firm (not just in trading and investment banking areas) to be sure that they are consistent with sound risk management,” the statement read.

The regulator is set to hold a second round of talks with London-based firms about remuneration policies and report its findings regarding good practice early next year.

It will also publish general findings about pay structures in the London market on a no-names basis.

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