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Bankers' pay embarrassment for PM

RBS to award £340m in bonuses despite losses

RBS banknoteRoyal Bank of Scotland is to pay £340 million in bonuses to staff despite preparing to announce its nine consecutive annual loss.

The bank, 72% owned by the taxpayer, said no decision had been taken and that bonuses had fallen since they peaked at £1.4 billion in 2008.

If approved it would be the first time since the financial crisis that Lloyds Banking Group will have paid out a bigger sum in bonuses than RBS.

Lloyds is expected to award approximately £390m in bonuses to employees, reflecting its improved financial performance.

The bonuses, however, may prove embarrassing to Prime Minister Theresa May who has pledged to clampdown on excessive boardroom pay.

The RBS payouts, reported by Sky News, also coincide with further penalties against the bank. RBS is to pay an $85 million (£67.98m) to settle civil charges that it tried to manipulate a key benchmark for interest rate products in the US.

The case was brought by the Commodity Futures Trading Commission.

Ross McEwan, RBS chief executive, said: “This is an example of past misconduct that has no place at RBS.

“These findings make for uncomfortable reading and we have already taken significant steps to make sure this kind of behaviour cannot happen again.”

Updated Mon 6 Feb: David Cumming, head of equities at Standard Life, says there are still too many overpaid chief executives.

Asked on a radio programme about Prime Minister Theresa May’s green paper for executive pay, he said that while company bosses need to be well paid, “we are still seeing too many proposals that we’re not happy with…fund managers like ourselves need to take a firmer stance”.

He said too many chairmen are too “obsequious” towards their chief executives and pay them too much, adding that if business does not change, the government would bring in more draconian and less flexible rules.

Colin McLean, managing director, SVM Asset Management (right), said: “2017 could finally be a year for change in executive pay, with both investors and politicians ready for a fight.

“Some long-term incentives were put in place before the 2012 reforms, with binding shareholder votes only required every three years. This year almost half the FTSE 100 face binding votes on pay, and we will see changes bites. The shareholder revolt seems less likely to fizzle out this time. 

“While the FTSE 100 has changed little in 17 years, executive pay has trebled. Average CEO total pay at the UK’s top 100 companies is 150 times higher than average worker income, and that ratio has doubled in the last decade. UK CEOs are the most highly remunerated in Europe, earning 50% more than the average counterpart in Germany, the next best paying country. 

“There is growing evidence to suggest there is no strong link between high CEO pay, and performance and some research has actually found a negative correlation between the two. A recently commissioned study by CFA UK from Lancaster University Management School found a material disconnect between pay and fundamental value generation.

“The real cost to shareholders may be much higher than CEO’s cash pay-outs. Poorly thought out rewards can encourage self-serving behaviour and destroy corporate value.

“Most incentive schemes remain relatively short term, with poor linkage to shareholders’ long term interests or sustainable returns.

“Unsophisticated short term metrics like earnings per share growth are often used to assess performance, instead of more robust benchmarks such as return on invested capital.

“Investment managers increasingly recognise that good stewardship of assets, including voting and engagement, is part of the value they add.

“As lower market liquidity encourages longer holding periods, institutional investors must act to make boards effective, rather than simply voting with their feet. Incentives for CEOs should simply not be an option on a rising stock market.”

 

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