Bankers' pay needs reform

International Monetary Fund Managing Director Christine Lagarde called Wednesday for more reform to bankers' compensation, saying they are still encouraged by their pay packages to take too much risk.

"Incentives related to compensation practices need to change, so that rewards are no longer so much tied to myopic actions and excessive risk taking," she told a forum co-hosted by the Institute for New Economic Thinking in Washington.

"Compensation packages can be structured to favor the long-term performance and soundness of the firm," she said.

Lagarde pointed to the possibility of financial institutions cancelling or taking back pay to executives whose actions result in poor performance or force the institution to seek government support.

She added that IMF research shows that giving shareholders more "say on pay" for top company executives can help reduce stability risks.

But she said modifying pay deals and tightening regulation is not enough to reduce excessive risk taking by banks, of the type that caused the 2008 financial crisis.

"What is needed is a culture that induces bankers to do the right thing even if nobody is watching," she told the forum.

She mentioned both the need for stronger individual ethics but also the inclusion of more women in top management and board roles in major institutions.

"More women leaders would also help. Several studies have shown that female leadership is more inclusive," she told the group.

Referring to the investment bank whose failure deepened the crisis seven years ago, Lagarde asked: "What would have happened if Lehman Brothers had been Lehman Sisters?"
Source: AFP