Shareholders fire broadside at Horta-Osorio pay package

Chairman Sir Winfried Bischoff was made to endure three hours of testing exchanges in defence of the bank's strategy at the annual general meeting in Glasgow.

The Association of British Insurers had issued an "amber top" alert to highlight the lucrative signing-on deal for Horta-Osorio, while others have been critical that not all of his long-term targets have been set, and will depend on his strategic plan.

More than 8 per cent of the shares cast were opposed to the bank's remuneration report, but anger also spilled out over the bank's 3.2 billion compensation pay-out for victims of mis-sold payment protection insurance, which could cost Britain's banking industry some 8bn.

In a statement issued before opening the floor to questions, Bischoff conceded that "reward in the banking industry remains a sensitive issue" for both shareholders and society in general.

He attempted to ameliorate any backlash over multi-million pound deals by noting that, as a percentage of revenues, "our overall compensation for 2010 is less than it was in 2009".

However, shareholders refused to be bowed and bombarded the chairman with questions on Horta-Osorio's signing-on deal, worth up to 13.4 million.

Bischoff repeatedly pointed out that such sums were necessary to attract the top talent, an argument that prompted shareholder Martin Simons of London to observe that "the banking community is living in cloud cuckoo land".

He said: "I welcome our new chief executive - welcome to a bed of nails - but I am concerned about his remuneration."

The tone turned particularly fractious during an exchange with shareholder Rev Dennis Nadin of Essex, who said he was "unconvinced" by claims that the board was listening to shareholders' concerns.

"We hear about the need to get the best bankers - this system simply encourages greed," Nadin said, drawing a scattering of applause from the 350-strong audience.

Investors reserved some of their ire for Horta-Osorio's predecessor, Eric Daniels, who left the group with 2.6m in salary and bonuses last year after steering the group through the disastrous acquisition of HBOS.

Isle of Wight shareholder Alexander Hopkinson-Woolly noted that under American-born Daniels' leadership, the formerly proud Lloyds stallion had become "rather more like a cart horse".

Problems were further compounded when Daniels tapped shareholders for 13.5bn to pay for the "nag" HBOS.

"The board was conned by the government, and now the board and the government are trying to con us," he said.

He and others were additionally aggrieved by the actions of the former Labour government, which brokered the shotgun marriage of Lloyds and the stricken HBOS at the height of the financial crisis in 2008.

Having been ushered into a deal that gave it dominance over much of the UK's high street banking, Lloyds has now been told by UK and European regulators that it must shed 600 of its retail branches by November 2013.

"To sell us something and then to tell us that we must sell it at a loss is no justice," Hopkinson-Woolly said, drawing yet another round of applause.

In a brief statement before taking questions, Horta-Osorio emphasised his commitment to the group's network of Lloyds, Bank of Scotland, Halifax and TSB branches. The group is contesting a potential recommendation from the Independent Commission on Banking which could lead to further substantial branch disposals.However, the new chief executive made no mention of Scottish Widows, the Edinburgh-based life and asset management business that Horta-Osorio is thought to regard as non-core. Speaking afterwards, he said he had nothing further to add until his Project Verde review is completed at the end of June.

Horta-Osorio also defended the group's shock decision earlier this month to take a 3.2bn provision against payment protection insurance (PPI) claims, a move that knocked Lloyds into a loss for the first quarter of this year.

"As I said then, I believe our decision was the right thing to do," Horta-Osorio told the audience." It draws a line under it, and allows us to move on."

Bischoff added that the company was making good progress on the sale of the branches demanded by European regulators, even though the UK government's Independent Commission on Banking suggested in its interim report last month that Lloyds might have to sell hundreds more branches to boost competition.

Lloyds has said the recommendation could delay or complicate its sale programme, although the ICB's final recommendations are not due until September.

Eventually, the UK government plans to sell its stakes in Lloyds and Royal Bank of Scotland back to the private sector, although that process may not start until 2012.