Britain blocks Royal Bank of Scotland bonus plan

Fri Apr 25, 2014 11:39am EDT
 
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By Matt Scuffham and Chris Vellacott

LONDON (Reuters) - Britain has blocked plans by state-controlled Royal Bank of Scotland (RBS.L: Quote) 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 shareholder approval.

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.   Continued...

 
A man walks past a Royal Bank of Scotland building in central London January 28, 2014. REUTERS/Paul Hackett