Citing an international trend to clamp down on risk-taking that could lead to financial disasters similar to the 2008 collapse of Lehman Brothers, banks will soon be required to disclose the salaries of employees who earn as much as board members do, a Financial Services Agency official said Monday.
Starting in July, banks will have to disclose how many such employees they have and their collective salaries each year, FSA Supervisory Bureau official Tsuyoshi Saito said. It “will be up to each bank” to disclose any further information, he said.
“We are doing this as part of an international movement to prevent banks from linking too much of an employee’s salary to performance,” Saito said. A performance-based pay system is believed to have led a few Lehman Brothers employees to invest heavily in risky securities backed by subprime loans, leading to the downfall of the Wall Street giant in September 2008.
But the agency’s measures may not make much sense in Japan, where the new rule applies only to banks as defined under the Banking Act. In general, the salaries of Japanese bankers are less based on performance than those of foreign bankers.
In Japan’s financial sector, the most highly paid workers, whose salaries are performance-based, are in the local units of, for example, Goldman Sachs, Morgan Stanley and Deutsche Bank. However, these are not banks as defined by the Banking Act.
Among foreign banks that will have to follow the rule are Citibank Japan Ltd., the Japanese unit of State Street Corp. and Societe Generale Private Banking Japan.
Nomura Holdings Inc. and Daiwa Securities Group Inc. will also have to follow the new rule even though they are not viewed as banks under the Banking Act, because they adhere to an international rule on information disclosure, Saito said.
Banks and other listed firms already disclose total compensation received by board members. They also have to disclose the names and compensation amounts of board members paid ¥100 million or more a year.
The Switzerland-based Financial Stability Board, a body set up by finance ministries and central banks of developed countries, makes recommendations on the impact that compensation structures have on the level of risk-taking.