The UK’s big four high street banks have handed out £30m in share awards to their top management this year in their efforts to sidestep Brussels’ cap on banker bonuses.
The EU ruled at the beginning of the year that bonuses could be no bigger than a banker’s salary – or double that if shareholders gave approval – but the move has prompted banks to make awards of shares alongside salaries and traditional bonuses to stop top bankers suffering pay cuts.
The scale of the payouts to a dozen or so individuals at each of HSBC, Barclays and the bailed-out banks Lloyds Banking Group and Royal Bank of Scotland is being revealed just as the banks prepare to hand out bonuses for 2014 – a year when many of them were hit by fines for misconduct. These included a record £1.1bn fine on five banks from the UK regulator, the Financial Conduct Authority, for rigging foreign exchange markets.
The annual bonus round could also be particularly sensitive as it comes in the runup to the general election.
The biggest award of role-based pay, or allowances, to a management team was at HSBC, which had admitted in March it intended to give its chief executive, Stuart Gulliver, £1.7m in such share awards.
The bank’s disclosures to the stock market show Gulliver was among 13 individuals receiving a total of £13.5m in shares during 2014.
Barclays has handed £8m to its top 12 bankers, including the chief executive, Antony Jenkins, who last year faced a wave of protests over pay at the bank. Jenkins justified a rise in bonuses in a year when profits had fallen by warning that pay cuts would send the bank into a “death spiral” of top individuals leaving.
RBS, 79% owned by the taxpayer, has handed out shares worth almost £5.5m to its 10 most senior bankers – with the exception of chief executive Ross McEwan, who has not received any extra allowance this year.
Lloyds Banking Group, 24% owned by the taxpayer, has given its chief executive, António Horta-Osório, about £1m. Ten of its other most senior bankers received £4m in total.
The awards of shares are an alternative to a straightforward rise in salary but have proved to be controversial.
The European Banking Authority – the EU’s overarching banking regulator - has concluded the awards breach the EU cap. But the Bank of England, which is opposed to the bonus cap, has permitted the use of the allowances to avoid salary rises.
It is not yet clear whether the UK’s banks will have to respond to the EBA’s criticism. George Osborne had been attempting to overturn the bonus cap in the European court of justice but abandoned his challenge in November.
Even so, the way the most senior bankers are paid is expected to be changed further after Bank of England governor Mark Carney backed a proposal by US central banker Bill Dudley to pay bankers in performance bonds that could be clawed bank in the event of misconduct that emerged later.
Carney raised the idea because the bonus cap restricts the amount of payouts that can be withheld or clawed back.
The City enjoyed a record year in 2014 for fines in the City, with the total hitting £1.4m after the FCA’s fines for rigging foreign exchange markets. Among the five banks involved were RBS and HSBC, while Barclays faces a penalty for the same misconduct in 2015. Lloyds was not part of the foreign exchange rigging settlement, but was fined £226m by the FCA and the US authorities for rigging interest rates. As well as fixing Libor its traders were found to have rigged a key interest rate that determined the price it paid the Bank of England for emergency funding at the height of the crisis in 2008.
