WASHINGTON - World Bank President Paul Wolfowitz broke bank rules in arranging a hefty compensation package for his girlfriend, a situation that has caused a "crisis in the leadership" at the institution, according to a report released Monday by a special bank panel.

World Bank President Paul Wolfowitz is shown in this 2006 file photo in Monrovia, Liberia. [AP]

The special panel said the full 24-member board must consider whether Wolfowitz "will be able to provide the leadership" to ensure that the bank achieves its mission of fighting poverty around the world.

The board will ultimately decide Wolfowitz's fate.

Board members have discussed a range of disciplinary options. It could fire Wolfowitz, ask him to resign, signal that it lacks confidence in his leadership or reprimand him. Board members have been leaning toward an expression of no confidence or other tough language that would make it difficult - if not impossible - for Wolfowitz to stay on.

Wolfowitz is scheduled to make an appearance before the board Tuesday. The proceedings are not public. A decision could come as early as Tuesday or Wednesday.

The controversy that has put Wolfowitz's job in jeopardy involves his handling of the 2005 compensation pay package for his girlfriend, Shaha Riza, a bank employee.

The special bank panel concluded that Wolfowitz's involvement in the details of the package "went beyond the informal advice" given by the bank's ethics committee and that he "engaged in a de facto conflict of interest," the report stated.

Riza worked for the bank before Wolfowitz took over as president. She was moved to the State Department to avoid a conflict of interest but stayed on the bank's payroll. Her salary went from close to $133,000 to $180,000. With subsequent raises, it eventually rose to $193,590.

The panel concluded that the salary increases Riza received "at Mr. Wolfowitz's direction (were) in excess of the range" allowed under bank rules.

In addition, the special panel said it was of the view that the controversy "had had a dramatic negative effect on the reputation and credibility" of the bank and had raised "serious questions" about the bank's governance and ability to carry out its mission.

The special panel also raised fears that the fracas could hinder the bank's ability to raise billions of dollars from countries around the world to provide financial help to poor countries.