Shareholders warn Lloyds on pay policies

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Lloyds Banking Group has received an "amber top" warning from a key shareholder group over its executive pay policies.

The Association of British Insurers' decision to highlight concerns over the bank's pay practices comes after the group's chairman, Win Bischoff, loudly complained that executives at banks should not feel they had to waive bonuses "agreed upon by shareholders".

The loss-making bank – which has received billions of pounds of taxpayers' cash to prop it up and is 41 per cent owned by the Government – could pay its chief executive, Eric Daniels, up to £6.2m for 2010 in salary and bonuses. Mr Daniels opted to waive his bonus in 2009. It followed intense pressure after similar moves from Barclays' chief executive, John Varley, and its president, Bob Diamond. Barclays did not receive direct aid from the Government during the financial crisis, by contrast to Lloyds.

Mr Daniels still received £1.12m in salary, although a long term incentive scheme did not pay out. Other executives on the Lloyds board did take their bonuses.

Amber means investors should consider carefully before voting in favour of a bank's remuneration report. Peter Montagnon, Director of Investment Affairs, ABI, said: "There is some residual concern among some shareholders in the way the remuneration committee made its decision on bonuses. We note that there is a new remuneration committee chairman, and a commitment to maintain close dialogue, which is positive."

Lloyds said: "Following shareholder representation, the Remuneration Committee will review performance against targets for the 2010 annual incentive plan in light of the overall operating performance of the business.

"It will exercise its discretion to reduce awards if it is thought to be appropriate. The 2010 Long Term Incentive Plan performance targets have also been revised following representation from shareholders. Specifically, the performance conditions have been made more stretching – and shares vesting in 2013 with respect to the share price element of the award must be retained for a further two years."