Royal Bank of Scotland bosses were left furious after the Government slapped down their attempt to pay their executives bonuses of twice their basic pay.
The EU’s bonus cap allows banks to pay employees 200 per cent of their salary only if a “super-majority” of two-thirds of shareholders agree.
But the bank was informed by UK Financial Investments (UKFI), which oversees the state’s banking interests, that it would vote against any such motion by RBS, forcing the bank to drop it.
The Treasury, which is thought to have forced UKFI’s hand, welcomed the move.
RBS, which still has 77 bankers on £1m-plus packages, will now be the only British bank with a 100 per cent bonus limit because UKFI will vote in favour of Lloyds’ bid to pay bonuses worth two times its top bankers’ salaries.
This is because Lloyds is seen to have largely completed its restructuring efforts and the state’s stake is now below 25 per cent after two successful share sales.
RBS bosses said the move to limit them to 100 per cent had left the bank facing “a commercial and prudential risk which it must try to mitigate”. That could see it paying some of the highest “allowances” most investment banks in Europe now offer to top staff. The allowances see bankers handed substantial monthly or quarterly payments to top up their pay. Because they aren’t linked to personal performance the “allowances” fall outside the cap.
Ross McEwan, RBS chief executive, and other RBS executives will also no longer receive annual bonuses, with all performance-linked pay now coming through share-based “long-term incentive” plans.
In its statement, RBS said its desire to pay 200 per cent of salary was “the best commercial solution” for the bank and was “understood during consultation with institutional shareholders”, suggesting the Government’s position had put it at odds with City investors.
But a significant minority of big institutions have become increasingly unhappy with the pay practises of banks amid a growing feeling that bankers’ interests are being put ahead of those of shareholders who put their money at risk so banks can carry out their activities.
A quarter of shareholders failed to back Barclays’ pay report at Thursday’s AGM and Standard Life Investments took the rare step of voicing its opposition publicly, to widespread public acclaim.
Standard Life is among those investors expected to file suit against RBS next week over its controversial £12bn rights issue in 2008. The investors who put up the cash were all but wiped out months later when the bank went cap in hand to the Government. The investors argue they weren’t properly informed about the bank’s financial state. RBS will defend the claim.
PIRC, the voting consultant which advices pension funds with investments, last night backed the bonus block on RBS, saying: “It is good that the UKFI has got to the position that concerned shareholders reached some time ago regarding the unacceptability of some banks’ remuneration policies and payments and the RBS bonus proposal.”
Deborah Hargreaves, director of the High Pay Centre, called the move “a welcome step on RBS’s road to rehabilitation”. She added: “The toxic pay culture in banking prevents banks from winning the public trust they need to thrive in the long-term. Now the Government must make sure RBS do not attempt to find ways around this cap.”
Andrew Tyrie, who chairs the Treasury Select Committee and the Parliamentary Commission on Banking Standards, said the move demonstrated that the Government, not UKFI, now held the whip hand over RBS.