`Don't make bonuses too high'

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Sir Andrew Large, chairman of the Securities and Investments Board (SIB), the City's top watchdog, yesterday warned firms about the dangers of paying huge bonuses to top-performing staff, writes Jill Treanor.

While recognising the difficulty of managing "star" traders and keeping their pay at attractive levels in a highly competitive market, he said: "Issues do arise about the balance between paying stars competitively to retain the best, and about the risk of incentivising such people to behaviour which is harmful and can lead to serious damage to the firm.

"Where top management does exercise strong cultural control, over time peer group pressure is likely to emerge, contributing to adherence throughout the organisation to standards of prudent behaviour, consistent with long- term performance."

Sir Andrew said excellent returns should be questioned. "Beyond a certain rate of return, management should, I suggest, ask itself whether high performance is to be attributed to superior expertise, or to undue risk or even to some less desirable factor."