UK Government blocks Royal Bank bonus plans

IRBS chief executive Ross McEwan will receive a salary of £1 million this year, and potentially up to three times that amount through the companys long-term incentive plan. Picture: Ian Rutherford

The move by UKFI, which manages the 81 per cent taxpayer share of the beleaguered bank, has led to RBS claiming that it now faces “a commercial and prudential risk” as it tries to award bonuses on a 1:1 ratio with salaries.

But in what has been seen as the government sending out mixed signals the Treasury has given permission to Lloyds, which it has a 25 per cent share in, to pay twice the size of salaries in bonuses.

A Treasury spokesman said: “We have made clear there will be no rise in the bonus cap for an RBS still in recovery, but a bonus cap at Lloyds that reflects the progress it has made in getting money back for taxpayers.

“A few years ago, bonuses were out of control, banks needed bailing out and the economy was shrinking. Under this Government’s long-term economic plan bonuses are down, the banks are recovering and the economy is growing.”

The EU bonus rules, which came into force on 1 January, limit annual payouts for 2014 onwards to 100 per cent of annual salary, or a maximum of 200 per cent with shareholder approval.

The Government believes the policies will not support stronger and safer banks and has launched a challenge to the rules in the European Court.

Barclays

Barclays yesterday won the support of shareholders for payments of up to 200% of salary, while also introducing new role-based pay awards that mean staff can still pick up bumper handouts.

But Labour said that the announcements meant the government has not done enough to cap bonuses for the wealthy and lampooned Chancellor George Osborne for using powers to curb RBS which he is questioning the legality of in the European Courts.

Shadow Treasury minister Cathy Jamieson said: “George Osborne is in a terrible muddle over bankers’ bonuses. He is spending taxpayers’ money on a legal fight in Brussels against the bonus cap and yet imposing the minimum cap at RBS.”

She insisted that it was political pressure from Labour which had forced the government to oppose massive bonuses at RBS.

She said: “The Government has bowed to pressure on RBS and finally admitted that bonuses of two times salary would be unacceptable at what remains a bank in Government ownership. They voted against Labour’s motion to impose the minimum cap at RBS in January, but have now been forced to reverse their position.

“But, confusingly, at the same time the Chancellor is supporting higher bonuses in Lloyds Bank and elsewhere.”

She went on: “People who are facing a cost-of-living crisis are rightly angry about excessive rewards for failure in banking over recent years. The Chancellor should accept the logic of today’s announcement and drop his legal action to block the bonus cap.

“And he should heed Labour calls to implement existing legislation on transparency in pay at the top and repeat the tax on bankers’ bonuses to pay for a compulsory jobs guarantee for young people out of work for a year or more.”

Limiting bonus pool a ‘risk’

RBS made it clear that limiting its bonus pool was a risk for its future commercial development while other banks could award bonuses on a 2:1 ratio.

A spokesman said: “The board believes the best commercial solution for RBS is to have the flexibility on variable to fixed pay ratios that is now emerging as the sector norm.

“This would also allow RBS to maintain the maximum amount of compensation that could be subject to performance conditions including clawback for conduct issues that may emerge in future. This position was understood during consultation with institutional shareholders.”

It means IRBS chief executive Ross McEwan will receive a salary of £1 million this year, as well as the potential for up to three times that amount through the company’s long-term incentive plan.

The bank will follow the lead of other banks in paying a fixed allowance to senior staff in addition to salaries in a move seen as side-stepping the EU bonus cap.

It means Mr McEwan will be entitled to an additional payment of £1 million from next year, although the bank added that the chief executive and other board members will no longer be entitled to receive annual bonuses.