On 6 December, the UK Treasury published a consultation document on new remuneration disclosure proposals for certain large banks operating in the UK.  These proposals have already generated much controversy, principally because they will require the disclosure of the detailed remuneration structure of the eight highest-paid senior executive officers on an individual (anonymised) basis.

Which banks will the regulations apply to?

The proposed regulations will apply to “relevant banking institutions.” In very broad terms, these institutions will be limited to certainUKbanks (and to overseas banks withUKsubsidiaries) with asset levels over £50bin.  It is estimated this would be a group of about 15 banks.

Which executives will the disclosure apply to?

The proposals would require the disclosure of the remuneration of the eight most highly-paid relevant executives (being individuals who have direct or indirect authority and responsibility for planning, directing and controlling the activities of the institution).  ForUKquoted banks  which already have to issue reports on directors’ remuneration, this will require disclosure of remuneration for a further eight executives below board level.  For non-UK headquartered banks, this will apply to their eight most-highly paid managers working for any branch or subsidiary established in theUK.

What form will the disclosure take?

For each individual, the firm would need to disclose (on an unnamed basis):

• Total fixed remuneration;
• Total variable remuneration, broken down into upfront and deferred elements;
• A breakdown of each of the upfront and deferred elements, showing the amounts paid in cash, equity and other forms of remuneration;
• Total amounts of vested long-term incentive awards;
• Amounts paid in pension awards and accrued benefits; and
• Any sign-on and severance payments.

Timetable for disclosure

For financial years commencing on or after 1 January 2011 but before 1 January 2012, the first disclosure will need to be made by 31 December 2012.  Thereafter, disclosure will need to be made annually, generally by the same deadlines for the institution to deliver its annual report and accounts.

Key concerns

The key concern for many banks will be whether in practice it will be possible to preserve the anonymity of each individual.

In practice, it may be possible for the public to make a good educated guess as to who an individual is, particularly as severance and sign-on payments have to be disclosed.

So, for example, if only one of the eight individuals had joined or left the bank that year, it may not be difficult to establish from other publicly-available information (e.g. LinkedIn profiles etc) who that individual is likely to be.

It may be possible to identify individuals remunerated by way of substantial share awards by reviewing regulatory filings by the issuer of the shares. It is also a concern that, unlike the FSA’s Pillar 3 disclosure regime, the proposed regulations are not expressed to be subject to the Data Protection Act 1998, so it would not be a defence for a bank to refuse to make disclosure of any individual’s remuneration because his identity could be established by the public from other information available.

Sam Whitaker is a Counsel in Shearman & Sterling LLP’s London office.