18 July 2008
Letter to Mervyn King, Governor of the Bank of England
18th July 2008
Mervyn Allister King, Esq.
Governor, Bank of England
Threadneedle Street
London EC2R 8AH
Dear Governor,
Executive Pay in Banking
I am writing to say how much I appreciate your recent decision to forgo a large salary rise. This action demonstrates that it is more important to do the right thing for the community than to accumulate personal reward. I think it is a profoundly helpful leadership example in these most difficult of times.
In April you told the Commons Treasury Committee that, “I intend the bank to contribute to the design of regulatory and incentive structures … to try to curb the excessive build up of risk taking…” It seems to me that you are absolutely right to highlight the incentives which drive banking behaviour. It is far more important and realistic to regulate these incentives than to attempt to control behaviours that are driven by such powerful incentives.
With regards to executive directors and the very top executives in a bank, there are two specific problems with the incentives arising from current remuneration practices.
(1) Bonuses are paid for short term (annual) performance. It is far too easy to get a big bonus for behaviours which might prove to be damaging in the longer term.
(2) Conflicting personal incentives at the top level obscure a clear and common understand of the banks overall position. Banks that have retained some partnership feel at the top (e.g. Goldman Sachs) have faired much better than those with individual star performers at the top.
You might be interested in my book (enclosed). The book proposes a remuneration structure called a FILLIP, which address these two problems. All top executives have just one incentive; to create shareholder value over the long term.
Yours faithfully,
Revd Patrick Gerard
Copied to http://www.performanceandreward.blogspot.com/
To see the book click on "View the book" in the left hand column.
Mervyn Allister King, Esq.
Governor, Bank of England
Threadneedle Street
London EC2R 8AH
Dear Governor,
Executive Pay in Banking
I am writing to say how much I appreciate your recent decision to forgo a large salary rise. This action demonstrates that it is more important to do the right thing for the community than to accumulate personal reward. I think it is a profoundly helpful leadership example in these most difficult of times.
In April you told the Commons Treasury Committee that, “I intend the bank to contribute to the design of regulatory and incentive structures … to try to curb the excessive build up of risk taking…” It seems to me that you are absolutely right to highlight the incentives which drive banking behaviour. It is far more important and realistic to regulate these incentives than to attempt to control behaviours that are driven by such powerful incentives.
With regards to executive directors and the very top executives in a bank, there are two specific problems with the incentives arising from current remuneration practices.
(1) Bonuses are paid for short term (annual) performance. It is far too easy to get a big bonus for behaviours which might prove to be damaging in the longer term.
(2) Conflicting personal incentives at the top level obscure a clear and common understand of the banks overall position. Banks that have retained some partnership feel at the top (e.g. Goldman Sachs) have faired much better than those with individual star performers at the top.
You might be interested in my book (enclosed). The book proposes a remuneration structure called a FILLIP, which address these two problems. All top executives have just one incentive; to create shareholder value over the long term.
Yours faithfully,
Revd Patrick Gerard
Copied to http://www.performanceandreward.blogspot.com/
To see the book click on "View the book" in the left hand column.
Labels: Bank of England, banking, incentives, Mervyn King
