By Clara Ferreira-Marques
LONDON, Feb 21 (Reuters) - Stephen Hester, chief executive of Royal Bank of Scotland, will forgo his 2009 bonus, sources close to the situation said on Sunday, as the rescued bank hammers out a pay deal for staff with the British government.
The decision by Hester -- who had been in line for a bonus of up to 1.6 million pounds ($2.5 million) -- will increase pressure on Eric Daniels, his counterpart at Lloyds Banking Group, also bailed out by the state. Daniels could stand to earn as much as 3 million pounds, including salary.
Both RBS, 84 percent state-owned, and Lloyds, in which the government holds a 41 percent stake, are expected to announce details of bonus payments either alongside or ahead of annual results due to be published later this week.
Hester's decision follows a move last week by top bosses at Barclays, who turned down their multimillion-pound bonus payouts despite bumper profits. Barclays did not receive direct taxpayer help but has acknowledged benefiting from the broader impact of state support.
The sources did not detail the specific size of the bonus Hester had waived.
One of the sources indicated the show of goodwill from Hester, who took the helm at RBS after it was bailed out by the state, was intended to pave the way for the government to approve a bonus pot for investment bankers, which it sees as the bare minimum to retain staff and turn the bank around.
Britain's Treasury -- through UK Financial Investments, which manages its stakes in rescued lenders -- has the right to veto any RBS bonus deal, a provision that followed the bank's decision last year to sign up to a state plan for bad debts.
It does not have a similar right of consent at Lloyds, which sidestepped the bad debt scheme with a record cash call.
Sources close to the situation have said the bonus pool for RBS's investment bankers is expected to be close to the widely reported total of 1.3 billion pounds ($2.03 billion), but because there is a deferred proportion paid in shares, it makes it difficult to come up with a definite total.
The compensation ratio is expected to be less than 30 percent -- at the bottom end of the industry range and well below rivals like Deutsche Bank and Barclays.
RBS, UKFI and the UK Treasury declined to comment on Sunday.
GOVT URGES RESTRAINT
Hester's move also follows calls earlier in the day from British Business Secretary Peter Mandelson, who said the money-losing banks should be restrained as they decide on bonuses for top executives.
'As far as RBS is concerned ... what we have said to them is that their priority is repairing their balance sheet, getting their capital back in place and lending again,' Mandelson said in an interview on BBC television.
'What I would say to RBS and to their Chief Executive Stephen Hester ... is this: If further down the line, in years to come, he has done well and he has turned around RBS, he deserves something back for it -- I would be the first to say so. But not now.'
Mandelson described Hester, who took the helm at RBS after the bank was pulled back from the brink by the British government, as 'a rather able man,' but said his performance and ability to deliver had not been tested.
Hester has repeatedly warned the government that RBS is walking a 'tightrope' as it balances its turnaround, the need to retain and attract good staff and public outrage over pay.
Mandelson signaled on Sunday that the government would not oppose its current bonus plans for staff: 'The bonus pool they have indicated is at the lower end of the banks,' he said.
Hester himself had been in line to receive a bonus of up to 1.6 million pounds, under terms already announced by the bank. Any bonus paid to him would not be in cash and would be deferred for three years.
Lloyds, Britain's largest retail bank, is also discussing its bonus payments, but it was not clear whether the bank would make an announcement ahead of its full-year results. Its total bonus pool is expected to be around 200 million pounds.
Daniels himself could stand to earn as much as 3 million pounds, including salary, if bonus payments are made in full.
A long-term share plan that could take that to some 6 million pounds is not expected to pay out this year.
'Our independent remuneration committee has made no decision,' a Lloyds spokesman said.
($1=.6501 Pound)
(Reporting by Clara Ferreira-Marques; editing by Karen Foster and Maureen Bavdek) Keywords: BRITAIN/BANKS (clara.ferreira-marques@reuters.com; +44 207 542 3214; Reuters Messaging: rm://clara.ferreira-marques.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
LONDON, Feb 21 (Reuters) - Stephen Hester, chief executive of Royal Bank of Scotland, will forgo his 2009 bonus, sources close to the situation said on Sunday, as the rescued bank hammers out a pay deal for staff with the British government.
The decision by Hester -- who had been in line for a bonus of up to 1.6 million pounds ($2.5 million) -- will increase pressure on Eric Daniels, his counterpart at Lloyds Banking Group, also bailed out by the state. Daniels could stand to earn as much as 3 million pounds, including salary.
Both RBS, 84 percent state-owned, and Lloyds, in which the government holds a 41 percent stake, are expected to announce details of bonus payments either alongside or ahead of annual results due to be published later this week.
Hester's decision follows a move last week by top bosses at Barclays, who turned down their multimillion-pound bonus payouts despite bumper profits. Barclays did not receive direct taxpayer help but has acknowledged benefiting from the broader impact of state support.
The sources did not detail the specific size of the bonus Hester had waived.
One of the sources indicated the show of goodwill from Hester, who took the helm at RBS after it was bailed out by the state, was intended to pave the way for the government to approve a bonus pot for investment bankers, which it sees as the bare minimum to retain staff and turn the bank around.
Britain's Treasury -- through UK Financial Investments, which manages its stakes in rescued lenders -- has the right to veto any RBS bonus deal, a provision that followed the bank's decision last year to sign up to a state plan for bad debts.
It does not have a similar right of consent at Lloyds, which sidestepped the bad debt scheme with a record cash call.
Sources close to the situation have said the bonus pool for RBS's investment bankers is expected to be close to the widely reported total of 1.3 billion pounds ($2.03 billion), but because there is a deferred proportion paid in shares, it makes it difficult to come up with a definite total.
The compensation ratio is expected to be less than 30 percent -- at the bottom end of the industry range and well below rivals like Deutsche Bank and Barclays.
RBS, UKFI and the UK Treasury declined to comment on Sunday.
GOVT URGES RESTRAINT
Hester's move also follows calls earlier in the day from British Business Secretary Peter Mandelson, who said the money-losing banks should be restrained as they decide on bonuses for top executives.
'As far as RBS is concerned ... what we have said to them is that their priority is repairing their balance sheet, getting their capital back in place and lending again,' Mandelson said in an interview on BBC television.
'What I would say to RBS and to their Chief Executive Stephen Hester ... is this: If further down the line, in years to come, he has done well and he has turned around RBS, he deserves something back for it -- I would be the first to say so. But not now.'
Mandelson described Hester, who took the helm at RBS after the bank was pulled back from the brink by the British government, as 'a rather able man,' but said his performance and ability to deliver had not been tested.
Hester has repeatedly warned the government that RBS is walking a 'tightrope' as it balances its turnaround, the need to retain and attract good staff and public outrage over pay.
Mandelson signaled on Sunday that the government would not oppose its current bonus plans for staff: 'The bonus pool they have indicated is at the lower end of the banks,' he said.
Hester himself had been in line to receive a bonus of up to 1.6 million pounds, under terms already announced by the bank. Any bonus paid to him would not be in cash and would be deferred for three years.
Lloyds, Britain's largest retail bank, is also discussing its bonus payments, but it was not clear whether the bank would make an announcement ahead of its full-year results. Its total bonus pool is expected to be around 200 million pounds.
Daniels himself could stand to earn as much as 3 million pounds, including salary, if bonus payments are made in full.
A long-term share plan that could take that to some 6 million pounds is not expected to pay out this year.
'Our independent remuneration committee has made no decision,' a Lloyds spokesman said.
($1=.6501 Pound)
(Reporting by Clara Ferreira-Marques; editing by Karen Foster and Maureen Bavdek) Keywords: BRITAIN/BANKS (clara.ferreira-marques@reuters.com; +44 207 542 3214; Reuters Messaging: rm://clara.ferreira-marques.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.