An organization that tries to coordinate regulation of financial services firms around the world is suggesting that Goldman Sachs and other global banks identify the “types of employees considered as material risk takers” and how they are compensated.
The Basel Committee on Banking Supervision Monday issued “for consultation” a series of proposed disclosure requirements on how risk takers are compensated, according to postings on the web site of the Bank for International Settlements, which tries to coordinate actions of central banks and promote international financial stability.
The Basel Committee developed the proposed disclosure requirements in coordination with the Financial Stability Board, backed by the finance ministers and central bank governors of the Group of Twenty economic powers, according to the BIS.
Fernando Vargas, chairman of the committee's Task Force on Remuneration and Associate Director General for Banking Supervision at the Bank of Spain, said the disclosure requirements "will allow market participants to assess the quality of a bank's compensation practices and the incentives towards risk taking they support".
The proposed “Pillar 3” disclosure requirements “add greater specificity” to so-called Pillar 2 disclosure guidance issued in July 2009, in the midst of the global financial crisis.
The Pillar 3 document calls for banks to disclose:
• The name, composition and mandate of the main body overseeing all forms of remuneration
• External consultants involved
• Employees considered to be “material risk takers”
• Key features of all forms of remuneration
• Frequency of review
• Key risks that are takenin to account when setting remuneration policies
• Measures used to account for risks
• How these measures affect remuneration
• Performance metrics for the risk takers
• How remuneration is tied to overall organizational performance
• How remuneration is adjusted in the event of weak performance of the organization
Vargas said that "these requirements should also contribute to promote greater convergence and consistency of disclosure on remuneration."