Barclays' David Walker: Banks Must Change Sales Incentives, Culture To Regain Customer Confidence

* Banks must put less focus on short-term profit - Walker

* Wants firms to say how many bankers get 1 mln stg pay

* Walker to become Barclays chairman in November

* First witness before UK inquiry into banking culture

By Steve Slater and Matt Scuffham

LONDON, Sept 12 (Reuters) - Banks must change their focus on sales commissions and short-term profit and open up to more scrutiny to repair their battered reputations, the man charged with rebuilding trust in British bank Barclays said on Wednesday.

Speaking to British lawmakers at the start of a three-month inquiry into banking standards, David Walker said banks should be forced to disclose how many staff make more than 1 million pounds ($1.6 million) a year.

But the 72-year-old corporate governance expert, who takes over as chairman of Barclays in November, criticised European proposals to cap bankers' bonuses as "retrograde," and said it was important to recognise that, despite recent failings, the industry was still "a very considerable British success story."

Banks are battling to win back public confidence after their reckless lending led to the 2008 financial markets crisis. Many have also been embroiled in scandals, with Barclays paying a record fine for rigging interbank lending rates.

The Parliamentary Commission on Banking Standards inquiry was launched after Britain's government came under pressure to scrutinise banks more closely. It is expected to call bosses from all top banks as well as regulators, consumer and other interest groups, and make legislative proposals by Dec. 18.

Walker, who authored a 2009 report into corporate governance at banks, said the industry's integrity had been damaged by a race for market share and too much attention on innovation driving short-term profits.

"Making quick returns and keeping abreast of competition overtook old fashioned concerns about integrity," he said.

Walker said he would not have joined Barclays if he didn't think change could happen.

"In the present environment can the cultural changes be accomplished rapidly? Yes, and they have to be," he said, adding he was confident because in the past management boards had not been focused on culture.

STARTING WITH PAY

Changing pay was key to starting that process and he said sales staff should consider the reputational impact on a bank before the profit, echoing comments by new Barclays chief executive Antony Jenkins this week.

Banks should not focus so much on sales commissions, and should be forced to reveal bands of pay for top staff, he said.

In his 2009 governance report, Walker called for disclosures in bands - for staff earning between 1 million and 2.5 million pounds, those earning 2.5 million to 5 million, and then in 5 million increments - but the proposals were not introduced.

"It's very hard for one bank to do that in isolation and I think it's a public policy matter to require that," he told the lawmakers. "I recognise readily that there are concerns about the level of remuneration."

Other firms, like pharmaceuticals and oil companies, should make similar disclosures, he said.

But he warned European proposals to cap bankers' bonuses were only likely drive up fixed salaries.

Britain's financial regulator has told banks they have 18 months to stamp out incentives that encourage mis-selling or face "intrusive" action.

Britain's banks are paying out millions of pounds of compensation to customers mis-sold insurance policies.

So-called "free" banking provided by British banks to current account customers who remain in credit has contributed to the mis-selling scandals, Walker said.

But he added any bank that stopped the offer would suffer compared to rivals, hinting that regulators or government might need to intervene.