EXECUTIVES and staff at the regulator of the financial services sector are in line for up to £33 million of bonuses and pay rises, it emerged today.
The Financial Services Authority said it has to introduce a new updated rewards strategy in order to improve the performance of its 2800 staff.
But the timing of the decision to increase incentives and salaries will cause surprise at a time when many of the firms it regulates are under fire for their own bonus structures.
It also comes in a week that deputy chairman Sir James Crosby resigned amid allegations that, while boss of HBOS, he sacked an employee who raised concerns about the bank taking excessive risk.
The current FSA bonus structure allows payments of up to 12.5 per cent, but under the new "talent management initiative" that would rise to 15 per cent.
It means it is likely to pay out up to 23 million this year, while an extra 10m is to be given out in pay rises to staff whose salaries the regulator said are "out of kilter" with market rates.
Chief executive Hector Sants, whose own bonus is to be decided next month by the FSA board remuneration committee, said that "significant salary anomalies" had to be tackled for its accountants, management consultants and risk analysts.
"The salaries we offer must be comparable with the external market for relevant financial services skills," he said.
"In the last 12 months our staff have done a very good job in extremely tough circumstances."
He added that the bonuses to be awarded will "not be in the same quantum" as bonuses paid in investment banks.
The additional money needed is to be raised through increases to the fees it charges most authorised institutions, such as high street banks and financial advisers.
The FSA, which is funded by the 25,000 companies it oversees and not public money, is in the process of a new approach to "intrusive and directive" supervision of the industry.
It wants to raise 437.7m in the year to the end of March 2010, an increase of 36.5 per cent.
Meanwhile, Prime Minister Gordon Brown has called for a new "clawback" bonus regime that would link future bonuses to long-term success.
He said bonuses should not be "a one-way bet", should be structured over a number of years and should be largely paid in shares rather than cash.
He also said that the FSA has a "right in regulation to penalise a bank which is basing its reward system on short-term deal making rather than long-term performance".
However, he has been unable for both legal and commercial reasons to stop Royal Bank of Scotland or the Lloyds Banking Group from paying out hundreds of millions of pounds to staff.