Investors urged to reject bank bonuses

THE row over bankers' pay flared again yesterday as a top governance body urged shareholders to throw out lucrative proposed bonus arrangements at Royal Bank of Scotland and Lloyds Banking Group.

Pirc, which advises institutional investors collectively holding assets of over 1.5 trillion, said the awards at the two partly taxpayer-controlled banks were potentially "excessive" and lacked sufficient disclosure.

Pirc's recommendation came a day after the Association of British Insurers slapped an "amber" notice on Lloyds's plans for bonuses for senior executives – indicating serious concerns. Amber is one below an ABI red notice that denotes disapproval.

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Last year, more than 90 per cent of RBS shareholders voted against the bank's remuneration report.

Alan MacDougall, managing director at Pirc, said: "We haven't forgotten what happened, or why it happened. We continue to have a critical view of remuneration at the banks.

"It is vitally important that shareholders don't fall back into pre-crisis attitudes to pay, and we urge investors to scrutinise remuneration issues more closely in their analysis of the financial sector post-crisis."

Under current plans, Lloyds chief executive Eric Daniels could receive up to 6.2m for 2010 in salary and bonuses. Last year he waived his bonus and a long-term incentive plan did not pay out.

It meant Daniels took home 1.12m out of a possible 5.4m.

Pirc said RBS's proposed long-term incentive plan was considered to have an excessive maximum payout of 400 per cent of base pay and there was remuneration committee discretion to raise this level "in exceptional circumstances".

An RBS spokesman said the proposals being put to shareholders at the 28 April AGM followed "extensive consultation" with its key investors, which include UK Financial Investments. "The clear intention of the new scheme is to strengthen the link between company performance, shareholder interest and the long-term incentives provided to senior staff," the spokesman said.

Lloyds said its remuneration approach was developed with input from both shareholders and regulators in 2009 and 2010.

"The remuneration committee has sought to strike a balance between the fact that the group is loss-making and the need to motivate key executives to run the business to maximise returns for shareholders, including the taxpayer," it said.

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One large investor in FTSE 100 companies said: "We are concerned as we have had our fingers burnt by being invested in banks – it's about ensuring that incentives are fit for purpose and encouraging long-term behaviour." Lloyds's AGM is on 6 May.

RBS declined to comment on market speculation that it may use surplus capital to buy back part of the taxpayers' 84 per cent holding in the bank.

The taxpayer has made a paper profit of 5bn on its RBS investment as the shares have rallied about 90 per cent this year.