The <i>IoS</i> banking survey

<i>The Indpendent on Sunday</i> asked the four major banks some inportant questions...

(Independent Graphics)

Does your bank think any major aspect of your bonus scheme was flawed, especially as it operated in non-retail banking areas?

RBS: CEO Stephen Hester has said, "Banking pay in some parts of the industry is far too high and needs to come down, and we intend to lead that process."

HSBC: HSBC has always been conservative in terms of remuneration, particularly when compared to other global financial services companies. Our senior executive remuneration structure has always contained a very large component of performance-related pay. Indeed, 80 per cent of executive director pay is related to performance and can be increased or decreased accordingly.

Lloyds: We are not an investment bank, we are a retail and commercial bank, and this is reflected in the salaries our colleagues receive. The majority of colleagues earn an average salary of £17,000 and the average bonus that we give to the majority of our staff is around £1,000, depending on their role and performance. We rely on our colleagues to provide a first-class service and support us in growing the business, and, as such, we will be paying bonuses for those members of staff who have gone the extra mile for us in the past 12 months.

Barclays: Barclays keeps its compensation practices under constant review to ensure they support our principle of pay for performance and reflect best practice in the market. At an industry level in terms of bonuses, and more broadly, it is clear that as asset prices rose following plenty of cheap money being made available by central banks all around the world, the pursuit of yield drove a lot of activity in the capital markets, and a lot of increased risk-taking in the capital markets. That willingness to take risk was definitely fuelled by the banks, and that willingness to take risk was fuelled by compensation structures in the industry.

So it is clear that there are adjustments that need to be made to compensation structures in the banking industry. We are conducting reviews at the moment which are designed to ensure that, through time, our compensation policies evolve appropriately. That's something which the board, the chairman, the senior independent directors, take very seriously, and we will work hard at it in order to disclose details at the AGM in April.

Is your bank making any changes to the way it sets targets and incentivises staff with bonuses now? Or is it waiting for the FSA report?

RBS: Yes. RBS CEO Stephen Hester has said: "RBS cash bonuses will be reduced by a greater amount than any bank I know in the world."

HSBC: HSBC's remuneration committee – composed of independent non-executive directors – constantly reassesses the group's remuneration structures. Current bonuses will obviously be affected by the performance of individual businesses and, at the highest level, by the performance of the group as a whole.

Lloyds: The decision to award a bonus to any colleague is the result of a robust evaluation of the performance of the individual against a number of financial and non-financial measures. Individual performance is judged against targets that are contained in the balanced scorecard, which covers areas such as business development, customer service, risk management, financial and people development. These targets are weighted differently depending on the role of the individual.

Barclays: Barclays keeps its compensation practices under constant review to ensure they support our principle of pay for performance and reflect best practice in the market.

Barclays' pay-for-performance philosophy is designed to be sensitive to movements in our profit performance. For 2009 and beyond, we are reviewing our compensation policies and practices to ensure that they evolve appropriately. We will have decisions to take following the dialogue that is going on between banks and the FSA who have set out their own views about what best practice looks like. We will be making those decisions over the course of the coming weeks and disclose details at the AGM in April.

By how much will your staff's overall bonus pot be reduced this February/March, compared with last year? In both money and percentage terms?

RBS: No decision has yet been made on bonuses. RBS CEO Stephen Hester has said: "There will be no bonuses of any sort, for anyone, associated with losses we have made whether high or low throughout the organisation." He has also said: "RBS cash bonuses will be reduced by a greater amount than any bank I know in the world."

HSBC: HSBC is in close period ahead of announcing its 2008 annual results on 2 March, at which point detail of remuneration will be disclosed.

Lloyds: Due to the unprecedented market conditions during 2008, the bonus outcomes for the group's colleagues will be lower. We would never disclose the total bonus outcome.

Barclays: Barclays keeps its compensation practices under constant review to ensure that they support our principle of pay for performance and reflect best practice in the market. 2008 was a difficult year for the sector. Whilst Barclays performed relatively well, our profits were 14 per cent lower than in 2007. We have therefore considered how best to reflect the contribution of staff whilst remaining sensitive to the environment, and, accordingly, the overall bonus pool has been reduced 48 per cent. Moreover, as you would expect, the decrease in variable pay rises with the seniority of individuals and, as we announced in November, Barclays executive directors have waived any bonus for 2008.

How many staff will get bonuses this year?

RBS: No decision has yet been made on bonuses. RBS CEO Stephen Hester has said: "There will be no bonuses of any sort, for anyone, associated with losses we have made whether high or low throughout the organisation." He has also said: "RBS cash bonuses will be reduced by a greater amount than any bank I know in the world."

HSBC: HSBC is in close period ahead of announcing its 2008 annual results on 2 March, at which point detail of remuneration will be disclosed.

Lloyds: All of our colleagues are eligible for bonuses, but decisions are always made on a case-by-case basis following a robust evaluation procedure.

Barclays: We have not disclosed this.

How much is your bank paying out in bonuses this year?

RBS: No decision has yet been made on bonuses. RBS CEO Stephen Hester has said: "There will be no bonuses of any sort, for anyone, associated with losses we have made whether high or low throughout the organisation." He has also said: "RBS cash bonuses will be reduced by a greater amount than any bank I know in the world."

HSBC: HSBC is in close period ahead of announcing its 2008 annual results on 2 March, at which point detail of remuneration will be disclosed.

Lloyds: We do not disclose this figure.

Barclays: We can fully understand your desire for such a number but, to be clear, we make decisions on bonuses based on Barclays performance, business unit performance and individual performance with the proportion of variable compensation varying in different parts of the business. Therefore, an aggregate number tells you very little, particularly given that we've told you that we have reduced bonuses 48 per cent across the group.

Barclays' cost base is £14bn, roughly half is staff costs. We employ more than 155,000 people, up over 20,000 from 2007, yet our staff costs are down 10 per cent.

What is likely to be the lowest bonus and what will be the highest?

RBS: No decision has yet been made on bonuses. RBS CEO Stephen Hester has said: "There will be no bonuses of any sort, for anyone, associated with losses we have made whether high or low throughout the organisation." He has also said: "RBS cash bonuses will be reduced by a greater amount than any bank I know in the world."

HSBC: HSBC is in close period ahead of announcing its 2008 annual results on 2 March, at which point detail of remuneration will be disclosed.

Lloyds: We have already stated that some colleagues will not receive any bonus at all for 2008. It is not possible to give the highest bonus paid at this stage as many bonus awards have not been decided or announced to the colleagues involved.

Barclays: As we said, Barclays has a pay-for-performance philosophy. Therefore overall total compensation for each individual varies according to the performance of the individual. We have said that variable compensation is down 48 per cent, and that decrease rises with the seniority of individuals. We do not disclose more detail than that.

To what kind of staff were those minimum and maximum amounts paid?

RBS: No decision has yet been made on bonuses. RBS CEO Stephen Hester has said: "There will be no bonuses of any sort, for anyone, associated with losses we have made whether high or low throughout the organisation."

HSBC: HSBC is in close period ahead of announcing its 2008 annual results on 2 March, at which point detail of remuneration will be disclosed.

Lloyds: Bonus awards are the personal business of our colleagues (with the exception of the group executive directors, whose bonuses are announced in the Report & Accounts) and as a result it would not be appropriate for us to say who will receive what.

Barclays: Again; Barclays has a pay-for-performance philosophy. Therefore overall total compensation for each individual varies according to the performance of the individual. We have said that variable compensation is down 48 per cent, and that decrease rises with the seniority of individuals. We do not disclose more detail than that.

There is a widespread, and not entirely friendly, debate going on in Parliament and the media about banks and bonuses. What would you say to our readers about this? What aspects do you think are widely misunderstood?

RBS: RBS CEO Stephen Hester has said: "I empathise 100 per cent with the public mood and it would give me no joy whatsoever to pay any bonuses to anyone, and if that was the responsible thing to do I would recommend that in a heartbeat."

HSBC: HSBC believes in performance-related pay structures. It is right that any individual's pay can be raised or lowered according to their level of personal contribution to the performance of the group. HSBC has always abhorred payment for failure, and the critical point in any consideration of remuneration should be the extent to which pay is linked to long-term sustainable success.

Lloyds: Our responsibility is to reward our colleagues, appropriately and sensitively, for their contribution to the group in 2008. Lloyds TSB is a retail and commercial bank, not an investment bank. The majority of our colleagues earn an average salary of £17,000 and the average bonus that we give to the majority of our staff is around £1,000. We have already stated that the total bonus outcome for 2008 will be lower and we are confident that colleagues will continue to be rewarded at an appropriate level.

Barclays: There's going to be a lot of public debate around the whole issue of bonuses – and rightly so. In every area this kind of debate is worthwhile. It's a matter that we take very seriously, and we hope that people can see us behaving responsibly in the very significant reductions in variable pay in Barclays during the course of 2008. It is important also, to distinguish between banks which have made money and banks which haven't made money, to distinguish between banks who have raised capital through the private sector or not.

That said, we absolutely recognise why it is right for stakeholders and the wider community to want to take a careful look at industry pay practices. To that end, we welcome the review that is being set up by the Chancellor. We have had work in hand for some months now, led by the Remuneration Committee here – led by the senior independent director, who is the chairman of the Remuneration Committee, and the group chairman – to look at this whole subject to ensure that the policies and practices we have got are right for the future.

We have decisions to take, for example, coming out of the dialogue that is going on between all the banks at the moment and the FSA, who have set out their own views about what best practice looks like. We will be making those decisions over the course of the coming weeks and disclosing details at the AGM in April.

Incentive compensation is, and will continue to be, important in this business and in many businesses, but there are without doubt adjustments that need to be made. Again, a debate around these issues is welcomed and we're going to take part in that.

Do you favour voluntary, industry-wide, agreed limits on bonuses in the future?

RBS: No reply

HSBC: It is extremely difficult to see how a cross-industry bonus cap could be introduced for any industry. It is particularly difficult to see how it could work in an international company that operates in many countries.

Lloyds: We will continue to work with our HR teams, managers, colleagues and independent advisers to ensure that colleagues' bonuses are appropriate and in line with our comparator group. We do not have a position on industry-wide limits but will continue to take note of regulatory requirements and trends within the industry.

Barclays: As we said, incentive compensation is, and will continue to be, important in this business and in many businesses. There's going to be a lot of public debate around this issue of bonuses – and rightly so. We look forward to being a part of that debate.