WHY ARE LLOYDS DIRECTORS LOSING PART OF THEIR BONUSES?
Q. WHAT HAS LLOYDS’ REMUNERATION COMMITTEE DECIDED?
A. In response to pressure from the FSA, Lloyds has decided to “claw back” a chunk of the bonuses it awarded to some senior executives to reflect the huge £3.2bn loss the bank has suffered as a result of mis-selling payment protection insurance (PPI) to thousands of consumers. In autumn last year, banks lost a high court case challenging the FSA’s ruling that the way in which they sold PPI went against the spirit of the rules at the time and they should therefore pay out compensation to customers.
Q. WHAT IS THE BANK CLAWING BACK?
A. Thirteen former senior executives at the bank are having a portion of their 2010 bonus awards cut for a total value of £1.5m. But the bank is not actually “clawing back” pay in the sense of getting money paid back. Instead, it is cutting down on its plans to pay out millions in “long-term incentive plans” – all-share bonuses deferred over several years. The executives are not actually losing assets they already have; they are losing future rewards.
Q. WHO’S LOSING WHAT?
A. Former chief executive Eric Daniels is losing 40 per cent of the long-term bonus award he was given in 2010, equal to £580,000. Four other former board executives – Truett Tate, Alison Brittain and Tim Tookey – are losing 25 per cent each, altogether nearly £1m. In addition, eight other unnamed executives are losing five per cent for a total of nearly £2m.
Q. WHY ALL THE FUSS?
A. Aside from emphasising the severity of the PPI scandal, the FSA is keen to establish a precedent for getting rewards back off executives to punish them for losses that emerge after they have left. It is part of an effort to align management incentives with the long-term health of the bank and tackle “short-termism”. But it is open to the criticism that the FSA is prioritising issues that spark populist anger rather than those that led to the bank seeking a bailout.