Royal Bank of Scotland has ditched plans to increase its bonus pool after the Treasury said it would block the move.
RBS, which is 80% owned by the government, was to seek shareholder approval for bonus payouts of up to two times basic salaries. The European Union's bonus cap limits bonuses to 100% of salary unless higher payments, to a maxium 200% of salary, are specifically approved by shareholders.
However, UK Financial Investments, which oversees the government’s stake in RBS, said that ‘the government made it clear it would not have supported such a proposal’. While the government does not support the EU's bonus cap, it said that 'while it exists, we will make sure it is applied fairly'.
'RBS’s pay policy will mean that the firm remains a back-marker in its overall remuneration compared to other banks. The government is clear that RBS’s total and average remuneration per head will fall this year,' it added, saying increases cannot be justified until the company's restructuring is completed.
UKFI has taken a softer stance with Lloyds, however.
'In the case of Lloyds, it has largely completed its restructuring. It is majority private-sector owned and the government’s shareholding in the bank is now down to less than a quarter. Reflecting these different circumstances, the government will use its shareholder stake to support setting the bonus cap at the maximum allowable ratio of 2:1, in line with all other majority privately-owned banks,' the statement said.
In its annual report , published this morning, RBS said: 'UKFI has informed the board that it will vote against any resolution which proposes a 2:1 ratio. In these circumstances the board expects such a resolution would fail and will therefore not be brought to the AGM. The board acknowledges that this outcome creates a commercial and prudential risk which it must try to mitigate within the framework of a 1:1 fixed to variable compensation ratio.'