LONDON After battling to shrink boardroom pay, shareholders now want to scrutinise the salaries of lower-ranking staff, as a recent slump in revenues sharpens the focus on how pay stacks up against performance.
Recent bonuses for star bankers have eclipsed those of their boardroom bosses and investors want to know what high-flying teams are paid and whether they are worth it, particularly after revenues at many banks slid in 2010.
"The greatest problem in financial service remuneration is less at board level, it's at the level below the board," said George Dallas, who lobbies companies to meet corporate governance guidelines at F&C Asset Management.
Ever since bumper pay was blamed for triggering reckless risk-taking that spawned the credit crisis, banks have laid bare rewards earned by executives, paying fewer bonuses upfront in cash and more in deferred share schemes.
Greater disclosure of how much each individual desk gets would ensure that pay stays in line with performance and could also stamp out undue risk-taking in lower echelons.
"Segmental breakdown of high payers within the bank would be useful... It's a case of understanding where the risks are being taken... and how that risk may be changing over time," said Robert Talbut at Royal London Asset Management.
This year's bonus round was the first since the European Banking Authority -- an overarching body of financial regulators -- introduced new rules on pay last year, including stricter disclosure rules for the largest firms.
Banks must publish numbers on pay packages for senior management and staff that can have a material impact on the risk of the institution, but are not required to report specifics on different divisions within a bank.
Investment banking heads at Barclays (BARC.L), HSBC (HSBA.L), UBS USBN.VX and Deutsche Bank (DBKGn.DE) all earned more than their bosses in 2010, highlighting the spikes in below-board level pay which has stoked investor unease.
Tougher regulation is forcing banks to cut profitability targets, denting investor pay-outs, and shareholders will use annual general meetings this year to vent worry over pay that outpaces performance.
Greater disclosure would allow shareholders to decide whether pay was justified, said Pirc, the influential shareholder advisory group whose clients manage more than 1.5 trillion pounds of assets.
"It's very difficult to know whether somebody's pay or bonus is egregious if you don't know what they've done and therefore what impact it's had on (the business)," Alan MacDougall, Pirc's director general, told Reuters.
HSBC last month cut its return on equity (RoE) target to 12-15 percent from a previous 15-19 percent, while Barclays said it would cut costs to improve returns after profitability fell in 2010.
At the same time, the investment banking units of banks including Barclays, Royal Bank of Scotland (RBS.L), Credit Suisse (CSGN.VX) and Deutsche Bank all increased the proportion of revenues paid out to their staff.
"My sense is that returns to capital have not been as good as they should have been given the returns to labour, and this is an ongoing issue," said RLAM's Talbut.
HSBC is discussing with investors an overhaul of its pay structure for top executives. It could see long-term incentive plans based on the year that has passed, rather than the subsequent three years now used, and require directors to hold their share awards until they retire.
In addition to traditional measures such as shareholder return, it could also include measures such as how the chief executive deals with regulators, which critics say could make them easier to achieve or less transparent.
Last year close to a quarter of HSBC shareholders who responded opposed or abstained from voting on the bank's pay proposals.
These included F&C and Standard Life (SL.L), whose head of corporate governance Guy Jubb said at the time plans to increase executive salaries were "unacceptable."
(Additional reporting by Steve Slater, Editing by Sinead Cruise and David Cowell)
(For the Funds Hub blog: blogs.reuters.com/hedgehub)
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