Lloyds And RBS Face Repeat Of Cash Bonus Cap

By Mark Kleinman, City Editor

Cash bonuses at the UK's state-backed banking giants are to be restricted to £2000 for a sixth consecutive year as ministers seek to avert a public row over pay less than three months before the General Election.

Sky News understands that Lloyds Banking Group and Royal Bank of Scotland (RBS) have been in discussions with UK Financial Investments (UKFI), the agency which manages taxpayers' stakes in the two lenders, about their pay structures for 2014.

Both banks will report their annual results for last year in the second half of next week, with an improved financial performance offset by hundreds of millions of pounds in fines for market manipulation offences.

Ministers placed a cap on cash bonuses at the two institutions in the final few months of the last Labour government in 2010, and it has been repeated after an annual review in each subsequent year.

The Treasury is keen to minimise the damage that will be caused by Lloyds and RBS shelling out hundreds of millions of pounds in bonuses to staff with the election campaign just weeks away.

The continued restriction on payouts does not mean that each employee's bonus will have a £2000 ceiling; the figure relates only to the cash element, with the remainder paid out in shares and deferred over staggered periods lasting several years.

A number of other changes to bank remuneration have also come into effect, dictating the size and structure of bonus packages.

Reforms introduced by the European Banking Authority mean that variable pay is now capped at 100% of salaries, or twice that sum if shareholders have explicitly approved the move.

While Lloyds secured permission last year to pay bonuses at the higher threshold, RBS fought an unsuccessful private battle with the Treasury which culminated with it only being able to pay out bonuses equivalent to an employee's salary.

Almost all major banks operating in Europe have introduced so-called allowances to contend with the European cap.

These count towards fixed pay but can be adjusted on an annual or in some more cases more frequent basis, leading to a review by the EBA which may announce further restrictions on their payment in the coming weeks.

Since being bailed out by taxpayers in 2009, RBS has paid out close to £6.5bn in bonuses to staff, according to research by Sky News.

RBS remains 80%-owned by taxpayers, with little prospect of a sale at a level that would reap a profit for the Treasury.

Lloyds, which has historically had a much smaller investment banking operation than RBS, has paid out an estimated £2bn in bonuses during the same period.

The bank is 24.9%-owned by UK taxpayers.

Lloyds, RBS, UKFI and the Treasury declined to comment.

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