Bankers’ bonuses are in the news yet again, with the Treasury Select Committee blaming remuneration policies that reward risk taking, rather than successful long-term performance, for their part in the credit crisis.
Committee chairman, John McFall, has called the design of such bonus schemes “fundamentally flawed” and banks’ non-executive directors have been called to account for failing to control excesses.
The report also criticises Lord Myners for acting naively in his handling of pension arrangements for Sir Fred Goodwin.
MPs suggest the Financial Services Secretary could have placed too much trust in the RBS board at the time of Sir Fred’s departure, missing the opportunity to demand the chief executive’s dismissal.
Sir Fred secured a £703,000 a year pension when he left the bank to be rescued by the taxpayer, despite having been the driving force behind its reckless level of expansion.
The committee is also sceptical about bankers’ commitment to change and suggests some are expecting to return to earlier remuneration practices “once the storm dies down”.
The Financial Services Authority has therefore been reminded that it should use its full powers to stamp out a culture that rewards risk taking.