David Cameron has called for a truce in the battle over bank bonuses in an attempt to repair fractured relations with the City and draw a line under weeks of public acrimony.
The prime minister has agreed to wave through awards amounting to hundreds of millions of pounds to staff at state-controlled Royal Bank of Scotland and has chosen not to criticize Barclays publicly after it announced on Friday that it would pay out £1.5 billion ($2.4 billion)of bonuses to its investment bankers.
Mr Cameron has been urged by City figures and business leaders – as well as many Conservative MPs – to take a lead in stopping what George Osborne, the chancellor, has called an “anti-business culture”.
His efforts to keep the bonus of Stephen Hester, RBS chief executive, below £1m led to a protracted wrangle with the bank’s board. Mr Hester eventually decided to surrender his bonus, while Fred Goodwin, his predecessor, was stripped of his knighthood – an act described by Lord Wolfson as that of a “school bully”.
In a meeting with senior ministers on Tuesday, Mr Cameron and Nick Clegg, deputy prime minister, agreed that they would not become embroiled in a public row with RBS this month when the bank announces its plans to reward investment bankers with a bonus pool estimated at £500m.
“People will be paid significant sums of money at RBS,” said one coalition official. “They will inevitably be big figures but we have accepted that. We own this bank and it has to remain a commercial operation.”
The government’s position paves the way for Bob Diamond, Barclays’ chief executive, to accept a bonus that could be as much as £3.4m for 2011. Mr Diamond on Friday refused to disclose his award, as he unveiled full-year profits of £5.9bn.
In an attempt to defuse public outrage over pay, Mr Diamond said annual incentives for Barclays’ top executive directors were down 48 percent in 2011 compared with 2010. Barclays also capped the cash element of staff bonuses at £65,000 and cut the overall bonus pool paid to its investment bankers by a third.
BarCap employees were paid an average of £202,000 last year, down 12 percent from £229,000 in 2010.
While the bank escaped political criticism, it received a sharp rebuke from the UK’s leading shareholder group.
Robert Talbut, chairman of the Association of British Insurers’ investment committee, said the reduction in bonuses at BarCap merely reflected a 32 per cent fall in pre-tax profit at the investment bank. “This appears to be very close to business as usual. It is not the signal of the change required in order to improve the investment case.”
Mr Diamond argued that the bank had tried to strike a balance between being “competitive and responsive to the public mood”. He said: “The important thing is that we don’t become uncompetitive.”
The ABI has previously raised concerns that banks were unfairly distributing awards to employees and shareholders. Barclays pushed up its dividend for the year by 9 per cent to 6p. The bank conceded, however, that it would probably miss a profit target set a year ago after generating a return on equity of 6.6 per cent in 2011 – only half of its 13 per cent goal for 2013.