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Chief executives of UK banks have been warned to put their bonuses in order.

As the government's £37 billion rescue package for Royal Bank of Scotland, HBOS and Lloyds TSB comes with the condition of no cash bonuses in 2008 and future incentives based on rewarding long-term value, the Financial Services Authority (FSA) has told other institutions to change their bonus culture.

A letter from FSA chief executive Hector Sants to all bank chief executives states: "There is widespread concern that inappropriate remuneration schemes, particularly but not exclusively in the areas of investment banking and trading, may have contributed to the present market crisis.

"It would appear that in many cases the remuneration structures of firms may have been inconsistent with sound risk management."

Mr Sants hit out at firms that frequently gave incentives to staff to pursue risky policies, undermining the impact of systems designed to control risk, saying it was to the detriment of shareholders and other stakeholders, such as depositors, creditors and ultimately taxpayers.

"We want to ensure that firms follow remuneration policies which are aligned with sound risk management systems and controls, and with the firm's stated risk appetite," he wrote.

"If the policies are not aligned with sound risk management, that is unacceptable. Immediate action will be required to change the policies.

"We believe that given the events of the past year firms recognise the need to review their remuneration policies and to take steps to change them if necessary."

The letter also includes examples of good and bad practice in providing bonuses.

The guidelines hit out at cash-only bonuses, bonuses based on the performance on the results of a single financial year, those that do not take into account risk or capital cost, and those without independent scrutiny.

In its place, the FSA is pushing for bonuses that are mixed between cash and shares (giving employees a longer term interest in the firm), and bonuses calculated not just on financial performance but also risk management skills and adherence to company values.

Speaking today, Gordon Brown said: "Future remuneration will be based on performance and long-term value creation.

"But this crisis has proved beyond doubt the virtues of the sound business practice of rewarding responsible risk-taking not irresponsibility."