The Financial Stability Board unveiled a series of proposals Friday aimed at linking bank pay to a bank's capital and liquidity position, which will enable national banking supervisors to assess banks' compensation plans with a view to preserving the overall stability of the global financial system.
The guidelines of the FSB, a group of central bankers and regulators, fall short of asking banks to impose absolute caps on bonuses, but recommend that banks with insufficient capital levels limit the amount of bonuses paid as a percentage of total net revenues.
The FSB recommends that banks defer 40% to 60% of bonuses over at least three years, and an even higher percentage for senior management, as well as pay at least 50% of variable remuneration in shares rather than cash.
Under the FSB guidelines, banks will be able to forfeit a portion of the bonuses pledged in case of bad performance under so-called clawback arrangements.
The FSB also wants to ban guaranteed bonuses of more than a year.