The boss of Lloyds Banking Group is being handed £11.5m in pay and share bonuses as the bailed out bank resumes dividends to shareholders for the first time since its taxpayer rescue seven years ago.
Unions were outraged by the package for António Horta-Osório, which includes a £7.5m bonus from a three-year scheme but excludes £3.6m of shares he is being handed under a new long-term incentive plan.
His ten-strong management team, assembled after he took the helm in 2011, cashed in £23m under the same three year plan – which 800 top staff also participated in – and are being handed £20m of shares in the new three-year bonus scheme.
The payments were revealed as the bank – which has the largest private shareholder base in the UK with some 3 million small investors – announced it would pay a dividend of 0.75p a share for 2014, worth £535m. Taxpayers will get around £130m from the first dividend since 2008, when the EU blocked payments under the terms of the taxpayer rescue and the bank lacked the financial muscle to offer them.
Frances O’Grady, general secretary of the TUC, said: “This £7.5m bonus will outrage customers and the taxpayers who bailed out the bank. And with the government being the biggest shareholder, voters will want to know why they have not acted to hold back this excess. It is as if the banking crisis never happened and it’s 2006 all over again.”
The Robin Hood Tax campaign, which wants a levy on the financial system, condemned the “lottery-sized awards”, while Labour Treasury spokeswoman Cathy Jamieson said people “will be rightly taken aback by the huge scale of the bonuses being paid – especially when Lloyds continues to be part-owned by the taxpayer”.
Lord Blackwell, chairman of Lloyds, said the bonuses were the result of “tremendous” performance. “People should celebrate the fact the management team have delivered a great achievement,” Blackwell said.
Profits for 2014 rose fourfold year-on-year to £1.8bn, taking into account a further £700m provision for payment protection insurance (PPI) – bringing the bank’s total bill for the mis-selling scandal to more than £12bn – and the £217m fine for rigging Libor imposed last year. The overall bonus pool was 3% lower at £370m and 49 bankers were paid more than €1m (£730,000).
George Osborne, the chancellor, said of the resumption of the dividend: “This is good news not only for taxpayers, who will get at least another £100m from the dividend, but also for millions of savers who hold Lloyds shares or have money invested in Lloyds through their pensions.”
The bonuses need to be voted on by UK Financial Investments, which controls the taxpayer stakes in the bailed out banks, at the annual meeting on May 14 – just days after the general election. Horta-Osório acknowledged that his pay was high. “I would expect in this country and with the culture in the country that you focus on pay for performance,” he said. He said the stock market value of the bank had increased significantly since the bonus shares were awarded in March 2012 when they traded at 34.7p each. They are now worth 79p.
John Cridland, boss of the employers’ body the CBI, leapt to the bank’s defence. “The CBI has been clear that rewards for failure are unacceptable but legitimate financial rewards for success should not be vilified,” said Cridland
Horta-Osório has embarked on the second of his three-year plans for the bank, which includes axing 9,000 jobs and closing 200 branches. Around 15,000 roles were lost under his first strategic plan.
In light of the revelations that Stuart Gulliver, boss of HSBC, has as bank account in Switzerland routed through Panama, Horta-Osório – who is Portuguese – said he was non-domiciled and paid tax on all his Lloyds earnings. He refused to say where his personal accounts were held.
In an attempt to appease any anger, he said that he would not sell any of the shares he was receiving from his bonus until the taxpayers’ stake had been further reducedand that his future bonuses were linked to the government’s stake falling further. The government’s stake in the bank has shrunk from 43% to below 24%.
Bonuses for the management team from 2012 and 2013 were being withheld because of the ongoing investigation by the Financial Conduct Authority into the bank’s handling of complaints for PPI. Even so, £2m of shares awarded in 2011 were released to the management team and £3.3m of shares were awarded to the top management in annual bonuses for 2014.
The dividend was lower than the 1p that some analysts had expected but Gary Greenwood, analyst at Shore Capital, said: “We are not particularly concerned by the fact that this is smaller than we anticipated as management had always said it would be a token effort at first.” Finance director George Culmer said the aim was to have a dividend payout ratio of at least 50% of sustainable earnings.
The pages of legal warnings attached to the Lloyds results also cover its Swiss banking operations which it sold in 2013. The bank had been participating in the US justice department’s investigation into potential tax avoidance but is no longer doing so.