Regulator to meet banks on compensation rules

2010-05-26 09:23

The South African Reserve Bank’s bank supervision department will

talk to all the country’s banks about employee compensation, it said in its

annual report for last year released today.

“South African banking organisations have generally sound

principles embedded in their incentive schemes,” the report said.

However,

cash-based incentive schemes were very skewed towards the short term.

“This phenomenon may result in employees being rewarded for

activities that appear positive in the short term.
 
However, such activities may

result in large losses before maturity,” the report said.

It also found that short-term bonus awards exhibited large-scale

differentiation.

“This may result in excessive individualism, to the detriment of

the team, the business unit and the organisation.”

Recently Finance Minister Pravin Gordhan said that extreme earnings

disparities “cause offence not just when they are associated with profiteering

or financial malfeasance, but also when the reward for honest work seems

disproportionate or weakly aligned with incentives”.

In the past, executives have received huge salary packages from

their banks. Last year, former Nedbank chief executive Tom Boardman earned about

R43?million and Standard Bank chief executive Jacko Maree about

R18?million.

The bank supervision department’s report also found that South

Africa’s banking sector remained profitable throughout last year. “However,

profitability levels were negatively impacted, mainly by an increase in credit

losses and operating expenses.”

Gross operating income amounting to R149.7?billion for the year

ending December 2009, remained at a level similar to that recorded in December

2008, namely R149.2?billion, while operating profit amounted to R35.2?billion,

the report said.


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