The government has blocked plans by Royal Bank of Scotland to breach the EU cap on bonuses, as the bailed-out bank admitted that 75 of its top staff were paid £1m or more last year.
The bank also revealed that is handing its new boss, Ross McEwan, an extra £1m a year to sidestep the EU cap on bonuses, reports The Guardian.
RBS, which is 81 per cent owned by the taxpayer, said it had wanted to ask shareholders for permission to pay bonuses twice the size of salaries – permission it needs because of the EU bonus cap – but found that UK Financial Investments, the group responsible for managing the government’s stakes in the bailed-out banks, would reject the plan.
It warned this could affect its business, in a sign of a new row with the government after a thaw in the relationship since the appointment of McEwan in September.
The EU is restricting bonuses for top bankers to 100 per cent of salary unless shareholders approve a 200 per cent cap, which has sparked attempts by banks to maintain pay deals for their staff by also handing them “allowances” in addition to their salaries.
RBS intends to make such payments to its new boss Ross McEwan. These will amount to £1m a year from next year – a similar payment to that being made to his counterparts at Lloyds Banking Group and Barclays but less than HSBC.
McEwan will not get the “allowance” in 2014 and will no longer receive annual bonuses in a move expected to reduce his pay to a third of his competitors. His base salary is £1m a year but he can earn up to three times that with the bank’s long-term incentive plan.
As it published its annual report, RBS said: “UKFI has informed the Board that it will vote against any resolution which proposes a 2:1 ratio. In these circumstances the board expects such a resolution would fail and will therefore not be brought to the AGM. The Board acknowledges that this outcome creates a commercial and prudential risk which it must try to mitigate within the framework of a 1:1 fixed to variable compensation ratio”.
Penny Hughes, the non-executive director who chairs the remuneration committee, said in the annual report that investors had been consulted on the proposals.
“I know it is not always easy to accept, but if RBS is to thrive we must do what it takes to attract and keep the people who will help us achieve our goals. While we are sensitive to public opinion, particularly given our ownership structure, the ability to pay competitively is fundamental to getting RBS to where we need it to be,” she said.
“The committee is tasked with making decisions on pay that encourage good service to our customers, are fair to all of our employees, and are in the interests of all of our shareholders. These decisions are never easy and are rarely popular in all quarters. “We understand why RBS is subject to public and political scrutiny and has an obligation to the public that goes beyond that of our competitors. But truly living up to our responsibilities means we have to reject easy options which are not in the long-term interests of our stakeholders,” she added.
The government does not intend to block attempts by Lloyds to pay bonuses of twice times salary, however.
A Treasury spokesperson said: “In the case of Lloyds, it has largely completed its restructuring. It is majority private-sector owned and the government’s shareholding in the bank is now down to less than a quarter. Reflecting these different circumstances, the government will use its shareholder stake to support setting the bonus cap at the maximum allowable ratio of 2:1, in line with all other majority privately-owned banks.”
But even as the government said it will continue its legal challenge to have the bonus cap over turned, it said it welcomed RBS’s decision not to put the proposals to a shareholder vote.
“We welcome the decision by RBS not to propose increasing the bonus cap ratio to 2:1. Under the new strategy set out by RBS’s chief executive, Ross McEwan, RBS is heading in the right direction, but it has not yet completed its restructuring and remains a majority publicly-owned bank. So an increase to the bonus cap cannot be justified and the government made clear it would not have supported such a proposal. The government therefore agrees that retaining the cap at the default ratio of 1:1 and RBS’s proposed pay policy is appropriate.”
“The government is clear that RBS’s total and average remuneration per head will fall this year.
“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.
