Investors group reveals pessimism over prospect of ending bonus 'arms race'

Published on Saturday 8 May 2010 15:02

AN INVESTORS group demanding reform of sky-high bankers' salaries is "pessimistic" about seeing an end to what it calls the "remuneration arms race".

Its concerns follow the passing of Lloyds Banking Group's remuneration report last week which will may see chief executive Eric Daniels receive up to 6.2 million in salary and bonuses over three years.

Lloyds remuneration report was approved by 90 per cent of shareholders while Royal Bank of Scotland saw its remuneration approved by 99.36 per cent of its investors – a vote higher than in 2008.

RBS chairman Sir Philip Hampton admitted to shareholders that pay for investment bankers was "dramatically high", but that the bank had to pay market rates in order to keep its staff.

PIRC, which advises institutional investors on issues of corporate governance, said the vote for RBS was "surprising" despite advising investors to vote against the report. PIRC had also recommended an "abstain" vote for Lloyds. Tom Powdrill, head of communications for PIRC, likened the market for high salaries and bonuses to a "remuneration arms race", but he was "sceptical" of claims that banks could do nothing about it.

"PIRC is generally sceptical of these arguments about there being a particularly well functioning market that is driving remuneration," said Powdrill.

He said although government-based reforms such as bonus deferrals and clawback arrangements were "welcome", he believed they had had limited effect on the "quantum" of salaries.

Powdrill argued that shareholders – largely institutions such as pension funds and insurance companies – were not in favour of large salaries, but were reluctant to cut pay for fear it would push jobs overseas.