Finance Roll

The recently published Walker Review on corporate governance and pay is part of the UK Treasury's efforts to manage risk at the nation's banks.

If implemented after the election next year, the banking reforms it recommends could be the strictest in the world. But some politicians and industry experts are saying they're not tough enough.

Making numbers, not names public

In a controversial move, Sir David Walker has called on banks to publish information regarding the pay of their top executives, who have risk-related responsibilities.

Despite calls from the public and politicians to 'name and shame' millionaire bankers, the review does not ask banks to divulge any personal details. Rather, it calls on institutions to make the number of employees who take home more than £1m a year public.

High earners will be grouped into pay bands: £1m to £2.5m, £2.5m to £5m and over £5m. These figures include salary, bonuses, performance-related rewards, deferred shares and pension contributions.

The opposite of the desired effect

While Sir David believes that more transparency is in shareholders' best interests, some analysts argue that this will only lead to pay inflation.

The majority of people - most of all those in banking and finance jobs - want to reach the top of their pay scales. Making bankers aware of how many in their firm earn more than they do may only encourage them to climb the pay ladder more aggressively.

The review could result in more bankers demanding a raise, decreasing their productivity, or seek better paying jobs elsewhere. Top talent will now have a lot more room to negotiate.

Talent drain

Some banking industry professionals believe that these pay disclosure measures could drive leading financial talent out of the City.

Even Sir David Walker himself has admitted that it could be a cause for concern.

"There will be huge comment from the banks, saying we'll lose all our competitive advantage to the American or German banks. And there is something in that - but I don't buy that if you have high standards you will automatically lose business," he said in an interview with the Sunday Telegraph.

If these types of reforms are adopted internationally, UK banks will be less likely to lose their competitive advantage. The Financial Services Authority (FSA) and British Bankers Association (BBA) have already suggested that other nations ask their banks to disclose £1m-plus earners.

High pay is only the tip of the iceberg

Excessive pay could be a symptom and not the cause of questionable corporate governance, says Charles Cotton, policy adviser at the CIPD.

Mr. Cotton suggests that banks look deeper than pay and bonuses in order to address the issues that led to the near-collapse of the global financial system. Banks' corporate culture and talent management philosophies could also be partially to blame.

While the Walker Review may have only scratched the surface of the corporate governance issue, it has started the ball rolling. It will be interesting to see whether the new government and the nation's banks ever implement these recommendations.