A one size fits all approach to reforming remuneration practices in financial services firms could jeopardise UK firms when competing for staff in the global jobs market, says the Securities & Investment Institute (SII).
In its comments on the FSA Consultation Paper 09/10 on Reforming remuneration practices in financial services the SII says There is room for debate on whether the most appropriate way to respond to the excesses of recent years is to impose formal regulation on all firms in a one size fits all approach. Such regulation could be unduly restrictive on firms who are subject to international competition for staff. At the other end of the spectrum this regulation could be seen as an unwelcome imposition on those firms who have always operated more conservative remuneration policies, but in a less structured way than is now proposed.
The SII sounds a warning as regards the future competitiveness of UK financial services: The adoption of potentially restrictive policies in the UK on remuneration will provide a serious barrier to the restoration or maintenance of the Citys position as one of the worlds leading financial centres.
We are very interested in the FSAs development of appropriate mechanisms to ensure that compensation policies across the industry are formally adopted which are in line with our own position paper on remuneration says the SII.
Regarding the FSAs draft Code on remuneration, SII states that it prefers a comply or explain approach to meeting the Codes requirement: A comply or explain approach would provide the flexibility for firms to decide whether deferral of remuneration or payment in stock is appropriate under the General Principle that policies should be consistent with effective risk management.
However, if the UK is to remain a market leader it must be able to lead the industry in standards of integrity. To the extent that behaviour is determined by regulation it tends to undermine the capacity for self-directed, ethical behaviour, albeit that it may achieve the short term result, says SII.
In its Consultation Paper, the FSA seeks comments on the suggestion that firms publish an annual remuneration statement. The SII says it strongly supports full transparency of remuneration structures which we believe should be published in a form that enables all stakeholders to distinguish between contracted remuneration and bonus payments.
We believe that a simple enhancement could be made to the current reporting requirement to list, in bands of GBP5k, the total remuneration of employees. Instead of publishing just an overall total, as happens currently, this should be broken down into two components: the base salary and the additional remuneration.
The FSA Consultation Paper queries the benefits and costs of extending the Code to all FSA authorised firms. The SII concludes that a key benefit is changing the culture of the entire industry on the issue of remuneration practices and not just part of it.
L.D.