Well, Yes, But....

The Financial Stability Forum, a union of regulators from around the world, said the current system - in which bankers are frequently paid million pound-plus bonuses based on their annual performance - needed urgent reform.

Amid a raft of other recommendations, including an overhaul of the way ratings agencies work and a beefing up of the Basel rules on banks' accounts, the FSF said remuneration should be tied to performance over credit cycles, which last five or more years.

This could raise the prospect of bankers having to wait many years for bonuses, or even be forced to forfeit them if the bank's performance later disappoints.

There's nothing all that outrageous, or even silly, about those recommendations. However, this is supremely silly:

Bumper annual cash bonuses for bankers could soon be outlawed after finance ministers from around the world ordered a major overhaul of the industry's pay system.

Umm, just how is that going to be done? Outlaw annual bonuses? Great, bang does the John Lewis dividend. Plus all those civil service merit payments and the like. Outlaw them only for those companies holding a banking licence perhaps? That'll just move the more agressive traders into the hedge fund world (where, in fact, almost all of them are already but still...).

No, legislating upon this simply won't work: you'll either ban merit payments and bonuses across the economy or you'll have such a narrow definition ofthose who cannot pay bonuses that it'll be easy to skirt and more importantly, it'll be the people just outside the net of regulation who do pay them. And that's not all that sensible for a group who want to tighten regulation now, is it?

But note that I've not said that changing the bonus structure is similarly silly: it's very much in shareholders' interests that the long term interests of the traders and themselves are aligned. And that doesn't take much of a change, just management altering the compensation schemes themselves: as indeed some banks have already:

Bob Diamond, the US banker who runs Barclays' investment banking arm, has cemented his position as one of the highest paid bosses in a FTSE 100 company after receiving almost £36m last year.

The figure comprises £21m in cash, bonuses and shares in addition to £14.8m from a three-year performance plan.

The £21m includes his £250,000 base salary, £6.5m cash bonus, a £11.3m share award held in a trust for three years and £3m of shares which will be received in three years provided performance criteria are achieved. The sum is down slightly from the £22m in 2006.

But his total is boosted by the £14.8m "retained incentive opportunity" - half in cash, half in shares - put in place three years ago when he joined the Barclays board. He received the sum because profits at the investment banking division Barclays Capital exceeded targets - despite the US sub-prime mortgage crisis.

Diamond is one of the highest profile bankers in the City and last year topped the Guardian's annual boardroom pay survey. He came out ahead of Bart Becht, £22m boss of Cillit Bang maker Reckitt Benckiser, and Giles Thorley, of Punch Taverns, who earned £11m in 2006.

Diamond achieved the bonus even though Barclays took a £1.6bn hit from the sub-prime crisis in the US and despite ongoing financial woes which have seen billions wiped off share values worldwide. The bank's profits in 2007 were £7bn, the same as 2006, and its share price has suffered. The shares Diamond already owns have fallen by £25m during 2007to £51m.

Expect to see much more of such allocation of restricted stock in the pay packets: and no legislation required.