By Kevin Drawbaugh and David Ljunggren
PITTSBURGH (Reuters) - World leaders at the G20 meeting on Thursday closed in on a statement urging new restraints on bankers' pay, a flashpoint for outrage in the global financial crisis.
The statement, however, was not expected to include specific monetary caps on pay, accommodating the United States' insistence that such limits would be a deal-breaker.
G20 policy experts will urge their leaders to approve measures such as clawing back salaries for poor performance and paying some bonuses in stock, an official said.
High levels of compensation, such as giving multi-million dollar bonuses to executives even at money-losing financial firms, have outraged political leaders and become a target for advocates of tighter oversight of banks and capital markets.
"Europeans are horrified by banks, some reliant on taxpayers' money, once again paying exorbitant bonuses," said European Commission President Jose Manuel Barroso.
"In Pittsburgh, the EU will call for coordinated action to stop this, building on measures already taken in Europe and elsewhere," he said in a statement before the summit opened.
A storm of controversy erupted in March over millions of dollars in bonuses paid to executives at bailed out insurance giant American International Group <AIG.N>, prompting President Barack Obama to call out-sized bonuses "just not acceptable."
Wall Street giant Goldman Sachs <GS.N> further inflamed the issue in July by saying it had set aside $11.3 billion for compensation in the first half of 2009, just months after getting a $10-billion taxpayer bailout, which it has since paid back.
G20 officials were focused on finding ways to link a bank's bonus pool and executive compensation more closely to the health of its balance sheet and overall profitability.
"QUICK KILL" CULTURE
Critics say the financial crisis was exacerbated by pay structures that rewarded short-term results and encouraged excessive risk-taking under a 'quick kill' corporate culture that policy-makers hope to discourage with new rules.
These rules will be closely linked to new standards for higher and better-quality bank capital and liquidity. Officials are expected to recommend that banks set aside more capital in good times to give themselves more cushion in bad times.
But finalizing and phasing in these standards could take years, partly due to concern that asking banks to sock away extra capital now could prevent them from lending more money to businesses and consumers to support economic recovery.
Key to the formulation of the Group of 20 statement will be input from the Financial Stability Board, a policy-coordinating arm of the G20 nations with the world's largest economies.
The FSB's focus is on "deferring bonuses, building in clawbacks if performance deteriorates, focusing bonuses in things like stock", said a senior Canadian official.
Canada co-chaired an FSB panel on limiting pay. Asked whether the proposals were those of Canada or the FSB itself, the official replied: "This is more what I think you're going to see coming out of the Financial Stability Board."
Before the global financial crisis that erupted last year, and in some cases right through it, many banks displayed a glaring disconnect between pay and performance, even some that had been rescued by massive taxpayer bailouts.
The Canadian official said the G20 would not impose universal regulations on curbing excessive pay.
COUNTRIES MUST IMPLEMENT
"This evening and tomorrow .... we'll see standards setting out the principles and (suggesting) practical things that can be done to back up these principles. It will be up to each country to implement them," he said.
The FSB said this month that it would advise G20 nations to prevent banks with low levels of capital from offering large bonuses. An FSB official said the board would issue guidelines at the summit on how firms should structure pay packets.
The guidelines were also expected to cover disclosure of pay levels, deferral and vesting periods on share-related pay, as well as independent oversight.
Earlier calls from some EU leaders, particularly French President Nicolas Sarkozy, for quantitative caps on pay were toned down after U.S. officials made clear that such an approach was not politically feasible.
(Additional reporting by Sumeet Desai, with Huw Jones in London, Editing by Chizu Nomiyama)