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LLOYDS BANKING GROUP is expected to stir up a fresh outcry over banking bonuses as it draws up plans for a multi-million pound incentive programme for its top managers.
The bonus plan is the first to be put in place since the banking giant was created from the merger of Lloyds TSB and HBOS and subsequently bailed out by the taxpayer.
Earlier this year the Lloyds board, led by chief executive Eric Daniels, who earned a basic salary of 1m last year, agreed to waive bonuses in the face of a public backlash.
Wolfgang Berndt, chairman of the remuneration committee, is working on the new scheme. He will benchmark Danielss bonus package against other bank bosses. This will include a comparison with Stephen Hester, who could earn 9.6m if he leads a turnround at the state-controlled Royal Bank of Scotland.
The executive remuneration review will be followed by an assessment of bonuses all the way down the company. Berndts proposal is expected to be put to shareholders for approval next January and February after the financial year-end but before the group posts its results. Details will be contained in the annual report. Lloyds said: We are currently in the early stages of this executive remuneration review.
Any decisions that are taken will be made within the context of last weeks announcement about executive remuneration from the Treasury, the recommendations of the Walker review and the FSA code on remuneration.
Lloyds priority remains to sort out its balance sheet. Daniels is likely to launch a 10 billion rights issue to lessen the banks reliance on the governments asset protection scheme, which could drive the taxpayers stake from 43% to 65%. At the same time, he is under pressure from Neelie Kroes, the EU competition commissioner, to carve up the group.
UK Financial Investments, which manages the governments bankstakes, is understood to have suggested to Sir Win Bischoff, Lloyds chairman, that he could reduce the size of the Lloyds board.
One plan would be for retail and wholesale executives Helen Weir and Truett Tate to step down. Tate may leave the company. It is understood that Gershon Cohen, head of Lloyds project finance team, is being groomed to succeed him.
Meanwhile, Lord Myners, the City minister, is expected to ask the top investment banks this week to sign up to the strictures on bonuses agreed at the recent G20 meeting. High street banks agreed to fall into line last week.
U.K. Treasury Seeks to Extend G-20 Bonus Curbs to More Banks
Oct. 4 (Bloomberg) -- U.K. Treasury minister Paul Myners is pressing more banks to adopt the curbs on bonus payments agreed by the Group of 20 nations and will meet with institutions including Goldman Sachs Group Inc. and Morgan Stanley.
We will speak to the major investment banks with significant operations in the U.K. and urge them to endorse and act in accord with the decisions made at the G-20 and ensure that those decisions are reflected in the decisions that they make in 2009, Myners said in an interview with the Sunday Telegraph in London. A Treasury official confirmed the remarks.
The Treasury also wants to discuss the matter with officials at JPMorgan Chase & Co., Deutsche Bank AG, UBS AG and Morgan Stanley. Last week, Chancellor of the Exchequer Alistair Darling got Barclays Bank Plc, HSBC Holdings Plc, Lloyds Banking Group Plc, Royal Bank of Scotland Group Plc and Standard Chartered Plc to sign up to the G-20 plan.
The measures require banks to claw back payments made to traders whose transactions go wrong. Theyre aimed at preventing pay from encouraging risky trades and weakening the capital position of institutions.
Darling wants to avoid voter anger over executive pay in the months before the next U.K. election, which must be held by June. He has said that pay should reflect the performance of traders, not the overall revenue of the bank, and that more awards should be given in stock instead of cash.
Tied to Performance
Bonuses need to be tied to performance, Darling said yesterday in Istanbul, where he is meeting other G-7 finance ministers. Having signed up to the agreement, we expect that banks, whatever they do come the bonus season, they stick to what they said.
While no U.K. banks revealed the size of their 2009 bonus pools, Goldman Sachs Group Inc. set aside a record $11.4 billion to pay compensation in the first six months of this year. The U.K. Treasury has extended 1.4 trillion ($2.2 trillion) of support to the economy including backing for Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc and loan guarantees for other programs.
Darling last week targeted what he calls greed and recklessness in the financial system, asking banks to curtail bonuses and said the rich will pay more in tax.
RBS Chief Executive Officer Stephen Hester on Sept. 29 said he supported Darlings promise to curtail banker bonuses. RBS will be less affected by Darlings proposals than other banks because the lender adopted deferred bonuses and clawbacks last year, Hester said in an interview. Regulation of bonuses will benefit RBS by creating a level playing field among banks, he said.