Pay dirt

13 October 2008 By Mike Prest

The UK regulator has told financial firms to kick their excessive bonus habit. Pay policy must be consistent with good risk management. Guidelines will be clearer and enforcement tougher though that should have happened earlier. For now, the market will cut pay anyway.

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The Financial Services Authority, the UK regulator, has written to the country's 30 biggest banks and building societies. In the letter, Hector Sants, the FSA's chief executive, said: I urge all firms, whatever the timing of their remuneration reviews, to consider carefully their remuneration policies, especially in the light of recent market developments. If the policies are not aligned with sound risk management, that is unacceptable. Immediate action will be required to change the policies.

An annex to the letter set out criteria for good and bad remuneration policies. These will be reviewed with financial firms and updated early next year.

The letter is not specifically addressed to firms into which the UK government is injecting capital.

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