City ethics watchdog bids to curb bankers' bonuses on risky deals

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The professional body responsible for City ethics said it wants to see a new "greed is bad" culture that would stop traders and bankers taking huge risks just to boost the size of their year-end payouts.

The proposals represent a sea change in the bonus system now widely seen as a charter for reckless gambling.

The Securities and Investment Institute (SII) says employees who save money by turning away tainted deals are currently unsung - and unrewarded - heroes.

The suggested guidelines, being published today, suggest bonuses should be paid for achievements "that may not always result in additional income accruing to the firm".

They add: "In many cases it could and should be because the individuals' actions have saved money, provided a valuable support service or prevented a loss. A pound saved is as good as a pound earned."

Bonuses should also be awarded for teamwork, sticking to the rules and training others.

Other proposals include:

* Reflecting the level of risk taken in the bonus so that massive gambles that could easily have gone wrong do not result in the biggest payouts.

* Paying some bonuses over a number of years to take into account the real long-term impact of deals entered into.

* Allowing part of a bonus to be clawed back if a deal turns out not to be as profitable as first thought.

* Making it a requirement that bonuses representing more than twice base salary have to be approved by an independent body such as a committee of non-executive directors.

* Requiring City banks to disclose payment of bonuses within certain bands in their report and accounts.

The restrictions would only apply to City workers earning bonuses worth more than twice the national average and whose bonuses were at least 50% of base pay.

In effect this means staff on packages worth at least £150,000. This would still catch tens of thousands of investment bankers.

The new rules would not be mandatory but represent "best practice" and firms would have to justify non-compliance.