Lloyds Eyes Shake-Up of Banker Bonuses

Lloyds Banking Group is examining whether to ditch the concept of annual bonuses for senior staff and extend the timeframe of longer-term incentives to up to 10 years, according to people briefed on a project to overhaul remuneration.

LLoyds TSB bank
Chris Ratcliffe | Bloomberg | Getty Images

The idea is being put to investors as Lloyds seeks to avoid the conflict between banks and shareholders over pay and prove to politicians and taxpayers that it is taking a more responsible attitude to the topic. Lloyds is 40 per cent state-owned.

This year pay has been a trigger for rebellion at several banks' annual meetings — from Citigroup and Credit Suisse to Barclays — as shareholders protest that too large a share of spoils has been paid in staff bonuses instead of dividends.

Lloyds has not been a central target for protests, in part because it employs relatively few investment bankers. But board-level pay is on a par with rivals.

Chief executive António Horta-Osório's package, comprising salary, annual bonus, long-term incentive plan and pension, is worth up to 8.5 million pounds ($13.6 million) depending on performance.

"This is a good idea," said one person who has already been polled on the plan. "Aligning bankers' pay with the long-term interests of shareholders would be welcome."

Some other banks have dabbled with longer-term payouts. Last year HSBC changed its rules to force senior staff to hold on to share-based bonuses until retirement, a model used at Goldman Sachs for partner-level bankers.

New laws and regulations in various jurisdictions have forced banks to stagger annual bonus payouts over three years.

Under the Lloyds plan, new trigger points for payouts could be set, including one relating to the bank's share price hitting the average price of 74p at which the government injected its rescue financing. Lloyds is trading at just over 40p.

People involved in the discussions warned that it was relatively early in the process and the idea could yet be shelved.

The scrapping of annual bonuses and the 10-year timeframe for payouts, compared with the standard three years for typical LTIPs, was the most extreme of a range of options being discussed, they said.

Any changes would not in any case be made quickly, with the reforms likely to be introduced for the 2014 pay round.

Lloyds declined to comment on the details of its planned pay reforms, but said: "We keep our remuneration plans under review at all times but have no current plans to change our structures and do not expect to do so in the foreseeable future."

One person connected with the process said the bank was keen to be able to pre-empt any recommendations on pay that might come out of the Parliamentary Commission on Banking Standards in the new year.

Lloyds, which is the biggest culprit among banks that missold payment protection insurance, with forecast compensation payouts of £4.3bn, said in the summer it had begun overhauling the remuneration structures of branch staff to remove inappropriate bonus targets, such as the hitting of sales numbers alone.

Early this year, Royal Bank of Scotland's chairman Sir Philip Hampton said he was considering the idea of whether annual bonuses should be amalgamated with LTIPs, although he later dropped the idea as too difficult.