Lloyds and RBS Agree to Tough Bonus Rules for Staff

The UK Government has extracted concessions from Lloyds Banking Group and Royal Bank of Scotland (RBS) in exchange for additional funding. The banks will no longer pay discretionary cash bonuses to staff earning above £39,000 in 2009. The ban also applies to high-earning investment bankers, who typically receive substantial bonuses. Senior executive board members will defer all 2009 bonuses for three years, aligning their remuneration with the long-term performance of the banks.

Key Takeaways:

• Lloyds and RBS have agreed to ban discretionary cash bonuses for staff earning above £39,000 in 2009.
• The bonus ban applies to high-earning investment bankers, who typically receive substantial windfalls.
• Senior executive board members will defer all 2009 bonuses for three years, including long-term incentives.
• The pay clampdown aligns with wider reforms in remuneration across the international banking industry.
• The G20 agreement on pay aims to stamp out excessive pay practices and introduces claw-back clauses and three-year deferrals on up to 60% of bonuses.
• The ban on bonuses is part of a wider effort to prevent excessive pay practices that contributed to the financial crisis.
• RBS has already set aside £1.79bn to cover staff expenses, including salaries and bonuses.
• The bank's investment banking operation is expected to prepare for a 50% hike in annual windfalls to £6bn.

Statistics:

• £39,000: the maximum salary for staff who will receive discretionary cash bonuses in 2009.
• £1.79bn: the amount RBS has set aside to cover staff expenses, including salaries and bonuses.
• £6bn: the estimated annual windfalls the investment banking sector is expected to prepare for a 50% hike in.
• 50%: the estimate of the hike in annual windfalls for the investment banking sector.
• 60%: the maximum amount of bonuses that will be subject to claw-back clauses and three-year deferrals.

Sources:

• The Times of London
• Bloomberg News