LEX Sir David Walker’s review of corporate governance in the banking sector deserves a wider application. Take his recommendation – soon to be put on a statutory footing in the Financial Services Bill – that banks should, in an anonymised, banded format, disclose the pay of high earners. Sir David has toughened his original proposal, which required disclosure of the number of employees earning more than the median compensation of executive board members, estimated at about £2m. He is now pushing for an absolute disclosure threshold of £1m.
This by itself is not much use. To enable shareholders to monitor risk taking, investors need to identify which employees, and therefore which product lines and business units, are generating abnormal rewards. Sir David, a Morgan Stanley adviser, is too much a creature of the City and of the Establishment for that. His argument that there is no evidence that naming and shaming would improve risk governance is weak. The onus should be on opponents of transparency to prove the opposite. Politicians have wisely refrained from introducing a windfall tax on bonuses. But the government should take a lead in requiring disclosure of the identities of the highest earners in UK-listed banks and overseas-listed UK-authorised entities, naturally while urging rival financial centres to do the same.
