Banks face pressure on bonuses after PPI

Lloyds remuneration committee questions payouts in wake of mis-selling scandal

Banks are under pressure to reconsider bonuses to top executives in the wake of the payment protection insurance (PPI) mis-selling scandal last night, after it emerged that state-backed Lloyds Banking Group could take back part of the £1.45m bonus awarded earlier this year to its former chief executive, Eric Daniels.

The news comes after Lloyds, which is 41 per cent owned by the British taxpayer, posted a loss for the first-quarter of this year after it set aside £3.2bn to settle claims connected to mis-sold PPI policies.

The provision was the biggest at the major UK lenders. Barclays set aside £1bn, while the Lloyds's part-nationalised peer Royal Bank of Scotland made an £850m provision. HSBC said it was putting aside £270m earlier this year.

Lloyds's remuneration committee, headed by the former chief executive Hermes Pensions Management Anthony Watson, is now looking at the implications on compensation in what is believed to be the first time a major lender has reconsidered bonuses awarded to senior executives such as Mr Daniels.

His 2010 bonus of £1.45m was part of the more than £5m awarded to the bank's five executive directors. The awards are deferred in the form of shares until at least March 2013 and, under Financial Services Authority rules, a claw-back can be applied to any part of the bonus that has not yet vested.

"As part of an ongoing process, the implications on compensation are being considered by the remuneration committee and will be determined by the board in due course, in line with the FSA code on compensation," a Lloyds spokeswoman said yesterday.

Lord Oakeshott, the former Liberal Democrat Treasury spokesman, said Mr Daniels should not have been paid a bonus to begin with, adding that bonuses awards for other bank chiefs should also be revisited.

"No bank chief executive responsible for this gross consumer mis-selling scandal should have been paid a bonus," he said last night. Turning in particular to Lloyds and the Royal Bank of Scotland, the two part-nationalised banks, he added: "The Treasury under both governments has been amazingly soft at controlling bonuses in the two state-owned banks."

Other awards made under Lloyds's 2010 annual incentive plan that could also come under the remuneration committee's scanner include the £875,000 for Helen Weir, the bank's then executive director for retail, and the £942,000 for Tim Tookey, Lloyds's outgoing finance chief, who was recently drafted in to act as the lender's interim chief executive after Antonio Horta-Osorio, the former Santander UK chief executive who replaced Mr Daniels in March, took a leave of absence.

The possibility of a clawback was raised by the Lloyds' chairman Sir Win Bischoff at the bank's annual meeting this year.