**The US Federal Reserve has issued guidelines aimed at preventing bank executives from taking excessive risks in the pursuit of bonuses.**They would apply to the pay of any employee able to take risks that could threaten a firm’s financial safety.
But the Fed said it would not set pay caps or outlaw specific practices.
Earlier the US Treasury confirmed reports that some firms which accepted government aid during the crisis must cut the pay of top bosses.
The seven companies that received the most aid from the US Treasury will have to reduce the basic salaries of their 25 best-paid employees by up to 90%.
The totals paid to each firm’s 125 top earners would be halved under the plan.
Full details of the Treasury scheme are set to be announced later - but the seven companies affected would be Bank of America, American International Group (AIG), Citigroup, General Motors, GMAC, Chrysler and Chrysler Financial.
'Appropriate’
Unlike the Treasury plan, the Fed proposal would cover thousands of banks, including many that did not need to access government bail-out funds.
The Fed wants to review pay policies at those banks - and can veto them if it feels they encourage risk-taking by executives or traders.
“The Federal Reserve is working to ensure that compensation packages appropriately tie rewards to longer-term performance and do not create undue risk for the firm or the financial system,” said Fed chairman Ben Bernanke.
The 28 biggest banks would be forced to develop their own plans to ensure that pay and bonuses did not encourage undue risk-taking, and to have those plans approved. The banks were not identified.
Smaller banks - where pay is typically less - would not have to submit their proposals for controlling pay, but would be subject to reviews by the Fed.
Bonus ‘outrage’
President Barack Obama has been outspoken about the payment of bonuses while the rest of the country is still suffering from the fallout of the global financial crisis.
Earlier this year, the president said he was “outraged” by plans by bailed-out insurer AIG to pay $165m bonuses pledged to executives.
And this week his senior aide, David Axlerod, called the payouts “offensive”, telling ABC TV that firms “ought to think through what they are doing and they ought to understand that a year ago a lot of these institutions were teetering on the brink and the United States government and taxpayers came to their defence”.
Excessive pay and bonuses have been cited as one of the causes of the world economic downturn, with bankers accused of taking greater risks driven by potential rewards.
At the recent G20 summit world leader sought to have bonuses linked to long-term performance.
However, the Pittsburgh meeting produced no plan for general caps on the amount banks could pay out - something that some European governments wanted.