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Why Lloyds’ bonus grab doesn’t get me excited | Nils Pratley

One question: how large would Lloyds’ PPI bill have to have been for chief executive Eric Daniels to lose his whole bonus?

Let’s get this right. Even if Lloyds’ pay committee had known a year ago that the bank was about to be hit with a £3.2bn bill to compensate customers who were missold insurance, the non-executive directors would still have awarded chief executive Eric Daniels a bonus of £870,000?

Yes, that’s what Lloyds is saying. Having pondered for ten months the implications of that colossal provision, the bank has decided that Daniels should lose £580,000 of his £1.45m bonus for 2010, but can keep the rest. So: how large would the PPI bill have to have been for Daniels to lose the lot? Today’s statement did not say.

It is clearly welcome news that a bank has finally had the gumption, and a correctly worded contract, to reduce bonuses in light of new information. But investors are owed a better explanation of how the deductions – 40% for Daniels, 25% for four close lieutenants and a token 5% for eight other executives – were determined.

The statement reeks of lawyers’ exchanges. Lloyds ut was the entire clawback process driven by legal argy-bargy? Was the outcome – in Daniels’ case, at least – really a negotiated settlement?

If so, the real moral of this tale is not the fact that, for the first time at a large UK bank, clawback clauses have been triggered. Rather, it’s how hard it will be for boards elsewhere to apply the principle of clawback in future.

The Lloyds case could not have been cleareris quite clear. If the £3.2bn provision had been taken in the 2010 accounts, Lloyds would have recorded three consecutive yearly losses on its preferred “combined business” measure. Yet the sums to be retrieved from the bonus pool amount to a mere £1.5m and only 13 people are affected. When the excitement over Lloyds’ action fades, we will still be reflecting that bonuses in the banking industry have become a form of salary-supplement. © 2012 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds