* RBS had planned to pay bonuses worth double salary
* UK government told bank it opposed the move
* Government says would back similar proposal from Lloyds
* Lawmaker Tyrie questions independence of UKFI
* RBS CEO Ross McEwan awarded 5.4 mln stg package
(Adds lawmaker comment on UKFI)
By Matt Scuffham and Chris Vellacott
LONDON, April 25 Britain has blocked plans by
state-controlled Royal Bank of Scotland to pay bonuses
worth double an employee's fixed salary, adding to the pressure
on banks to rein in pay.
Banks across Europe have come under fire from the public,
shareholders and politicians for extravagantly rewarding staff
at a time of austerity that was brought on in part by the
reckless lending of some financial groups.
British Business Secretary Vince Cable this week wrote to
banks and other big companies warning them to cut out excessive
rewards or face tighter rules. He said banks needed to address
"dangerous levels" of pay.
Banks, however, argue they need to compete for talent with
overseas rivals, particularly those in the United States.
The European Union has introduced a rule, which will apply
to awards handed out from early 2015, that bankers' bonuses can
be no higher than fixed pay, or twice that level with
Britain has launched a legal challenge against the rule,
saying it could make banks riskier if they respond by increasing
employees' base salaries, which cannot be clawed back later if
the future of the bank is under threat.
However the UK government, which owns an 81-percent stake in
the Royal Bank of Scotland (RBS) after bailing it out at the
height of the financial crisis, said on Friday the loss-making
bank was not performing well enough to justify higher bonuses.
"RBS is heading in the right direction, but it has not yet
completed its restructuring and remains a majority
publicly-owned bank. So an increase to the bonus cap cannot be
justified and the government made clear it would not have
supported such a proposal," a finance ministry spokesman said.
With the prospect of losing a vote on its bonus proposal at
its annual shareholder meeting in June, RBS said it was
On Thursday, more than a third of Barclays' investors
declined to back its pay policy, showing it is not just
state-backed companies whose shareholders are unhappy at what
they see as rewards for failure.
"We want banks to be run for the shareholders and not for
the staff. It's a difficult balance but it's certainly not right
at the moment," a major institutional shareholder in Barclays
and RBS told Reuters on Friday on condition of anonymity.
"Think what a miserable experience being a bank shareholder
has been over the last few years whereas the staff have made out
like bandits. Maybe the climate is such at the moment that
people are prepared to wear a bit more political intervention,"
the shareholder added.
Britain's opposition Labour Party said on Friday the
government had got itself in a "terrible muddle" over banker pay
and called on Finance Minister George Osborne to drop his legal
action to block the EU cap on bonuses.
"He is spending taxpayer's money on a legal fight in
Brussels against the bonus cap and yet imposing the minimum cap
at RBS," said Cathy Jamieson, Labour's spokeswoman for financial
Sources familiar with the matter said that UK Financial
Investments (UKFI), which manages the government's stake in RBS,
had initially been supportive of the RBS proposal but that the
finance ministry chose not to back its recommendation.
The finance ministry's intervention raised questions over
the independence of UKFI, which is meant to act like a
commercial shareholder, operating at arm's length from the
government and preventing political interference in the way RBS
and state-backed rival Lloyds Banking Group are run.
"It is difficult to argue that RBS is operating on an arms
length, commercial basis, free from government interference,"
said Andrew Tyrie, chairman of parliament's Banking Standards
Commission, which last year called for UKFI to be scrapped.
The finance ministry said that, unlike with RBS, it would
support a proposal by Lloyds to pay bonuses worth up to 200
percent of fixed pay.
Lloyds has returned to profit and the government has begun
selling shares in the bank, leaving it with a 25 percent stake.
RBS in February posted an 8.2 billion pound ($13.8 billion)
pretax loss for 2013 due to restructuring costs and misconduct
The bank is shrinking its investment bank and selling off
its U.S. business Citizens to appease lawmakers who want it to
focus on lending to British households and businesses.
RBS said on Friday that the change in strategy had led to an
"exodus of talented staff".
The bank said in March it was paying out 576 million pounds
in staff bonuses for 2013, down 15 percent on the previous year.
Its annual report, published on Friday, showed RBS paid one
unnamed person more than 5.5 million pounds last year and
another two were paid more than 4 million. The bank said it paid
75 people 1 million pounds or more in 2013. Chief Executive Ross
McEwan, who took up the role last October, could be paid 5.4
million pounds a year under a new pay plan.
Shares in RBS were down 0.4 percent at 1520 GMT, compared
with a 3.7 percent decline in the European banking index
. Shares in Lloyds were down 1 percent.
($1 = 0.5953 British Pounds)
(Additional reporting by Steve Slater, Clare Hutchison and
Andrew Osborn; Editing by Erica Billingham and Mark Potter)