Swiss banks including state-supported UBS must adhere to compensation rules.

The Swiss Financial Market Supervisory Authority (FINMA) has announced that it will introduce rules for its banking institutions to limit excessive risk-taking.

The regulator said yesterday (3 June) that staff bonuses must be linked to long-term performance, and invited responses to its proposals by 14 August.

It noted that pay structures rewarding short-term returns have been blamed for encouraging bankers to take huge risks in a bid for higher returns, exacerbating the financial crisis.

“Inappropriate risks and false incentives can threaten the stability and profitability of a financial institution…Remuneration systems should increase employees’ risk awareness”, its statement read.

“FINMA…requires that all variable remuneration paid out must actually have been earned by the company over the long term. By contrast, variable remuneration is not paid if a company does not perform well.”

Whereas other banks must fall into line by 2011, state-supported UBS must comply in 2009.

The Swiss government demanded a say in future compensation policy at UBS in return for its CHF6 billion (£3.4bn) bail-out, and UBS said last year it was axing bonuses for top executives and linking future pay-outs to the bank’s results.

In its Annual Report restated on 20 May, Joerg Wolle, Chair of the Human Resources and Compensation Committee at UBS, said: “Although the financial services industry is facing a difficult period, competition for the very best talent remains fierce and competitive pay remains a vital tool in attracting and retaining executives.

“Variable compensation, in both a cash and equity form, remains a core component of UBS’s new compensation model, though the final amount awarded to executives depends on their achievement of performance targets linked to long-term, risk-adjusted value creation.”

FINMA said boards of directors would be expected to take more responsibility for remuneration and banks will have to disclose the remuneration structure for all employees, rather than just for top management as under current legislation.