Banks that are dependent on UK taxpayer support are planning to rush out hundreds of millions of pounds in bonuses to senior bankers and traders before a threatened crackdown.
As ministers in Britain prepared to curb excessive remuneration, it emerged that Barclays and Lloyds Banking Group were poised to follow Royal Bank of Scotland by paying bonuses within weeks.
Lloyds, which has taken £17 billion ($38.1 billion) in rescue money from the Government, appears ready to give hundreds of millions of pounds to top executives and more junior staff.
Barclays, which has tapped the Bank of England for billions of pounds in loans and guarantees, is believed to be planning even larger payouts.
According to the terms of its purchase of the North American division of the collapsed Lehman Brothers, Barclays is due to pay $US2.5 billion ($3.8 billion) in bonuses to traders and dealmakers on Wall Street in the next few days.
Ministers reacted angrily to reports in The Times that RBS was preparing to give bonuses to thousands of senior bankers and traders. Banks applying for government insurance to underwrite toxic debt assets and free up cash for lending are likely to have to meet conditions preventing them paying excessive remuneration, officials said.
A White Paper to be published alongside the Budget in April will beef up supervision of banks by giving non-executive directors more powers to hold bank chiefs to account. However, senior bankers suggested that the clampdown would come too late to prevent bonuses being paid for 2008.
No final approval of bonuses has been made but UK Financial Investments, the Treasury body that owns the stakes in RBS and Lloyds, is prepared to see limited payouts as long as it is convinced that they are in the long-term interest of taxpayers.
Banks argue that bonuses will help to retain and attract good staff and so hasten the end of their need for government support. Many are obliged to pay them because of the wording of employment contracts.
Richard Pym, who earns £750,000 a year as executive chairman of the state-owned Bradford & Bingley, collects a £140,000 guaranteed bonus next month. The bonus, agreed upon before B&B’s collapse, has to be paid regardless of performance. Mr Pym will also collect a further bonus of £187,500 in respect of the first half of 2009.
Lloyds said that any director bonuses would be paid in shares at the end of 2009 and that staff bonuses would be lower than in previous years.
Barclays, which reports its annual results on Monday, is expected to pay large bonuses to the tens of thousands of employees in Barclays Capital. Last year, they were paid an average of £182,000 each.
Eight former Lehman high-flyers taken on by Barclays Capital in New York have reportedly been locked into contracts paying $US10-25 million a year.
Government officials said that all banks would in future have to adopt new incentive structures.
British Prime Minister Gordon Brown expected decisions to reflect the conditions of the economy and the performance of the banks. “There are no rewards for failure in what we are proposing,” he said.
Lord Mandelson, the Business Secretary, warned the RBS that it risked alienating ordinary people if it gave its traders and bosses “exorbitant” bonuses.
George Osborne, the Shadow Chancellor, said: “It would be an insult to struggling taxpayers if the Government allowed banks we part own to pay out big cash bonuses. To increase taxes on people earning £20,000 to pay the bonuses of someone earning £2 million is totally unacceptable.”
Any measures in Britain are likely to fall short of the plans by US President Barack Obama to enforce a $US500,000 cap on the pay of bank executives bailed out by US taxpayers.
In Britain, officials at No 10 Downing Street, the PM’s residence, said Mr Brown agreed with Mr Obama that a new approach to rewards was needed, although it was not thought possible to introduce an industry-wide pay ceiling without breaking contracts.
