New Swiss bank pay rules to curb risk-taking

By Lisa Jucca

ZURICH (Reuters) - Financial regulators on Wednesday told Switzerland's biggest banks and insurers to defer the bulk of their managers' bonuses and better match pay against performance under new rules aimed at curbing risky investing.

The new rules, to come into force on January 1, 2010, placed Switzerland in a growing group of countries moving the focus of compensation away from a short-term culture blamed for the financial crisis toward longer-term sustainable profitability.

"Remuneration schemes can create false incentives which may lead to inappropriate risks being entered into, threatening the business and profitability of a financial institution and, at the end of the day, its stability," regulator FINMA said.

FINMA said there would be no cap on executive bonuses and that the new system would apply to the country's seven largest banks and five biggest insurers. It did not name them.

The Swiss regulator also said it would welcome the introduction of clawbacks on bonuses when performance was poor, such as was already the case with the country's top two banks UBS and Credit Suisse.

Responding to criticism from the financial industry, FINMA said the rules were compulsory only for firms with at least 2 billion Swiss francs ($1.98 billion) in equity capital or as solvency.

Analysts said base salaries, stuck for years at large Swiss banks, would rise as the importance of bonuses diminishes. This would limit the flexibility the banks have enjoyed until now and also change the way firms spread compensation costs over time as payouts are made more in cash than shares.

The new rules are expected to apply to UBS, Credit Suisse and also large insurers such as Swiss Life, Swiss Re and Zurich Financial Services, analysts said.