UK government gets veto rights on RBS bonus pool

 

Britain will have a veto on bonuses at Royal Bank of Scotland as a condition for insuring bad debts, prompting the lender to say it would lead to more trouble retaining and hiring key employees.

Part-nationalised RBS detailed the unprecedented direct intervention from the government in a circular published ahead of a general meeting later this month when shareholders are due to vote on its accession to the state-backed Asset Protection Scheme for bad loans.

RBS said the Treasury, through UK Financial Investments, would have "the right to consent to the quantum and shape of the 2009 bonus pool" as a precondition for joining the scheme. The government veto aims to appease public anger over the return of "fat cat" bonuses and hefty pay packages at rescued banks like RBS, which will be 84 percent state owned after the latest aid package and is widely seen as being at the centre of the crisis.

But the measure could also place the bank, which employs 20,000 people in its Global Banking and Markets arm, at an even further disadvantage as it rebuilds its battered investment banking arm, prompting concern from institutional shareholders and a stark warning from RBS itself.

"Depending on UKFI's approach to recommendations made by theboard in respect of that bonus pool, this requirement may adversely impact RBS's ability to attract and retain senior managers and other key employees and thereby place RBS at a significant competitive disadvantage against its competitors"the bank said.

The move could also increase "the risks facing RBS and weaken management's ability to deal with them" it said. 

Global Banking and Markets, a key profit driver before the crisis, has been hit by poaching from rivals and has exited some areas with headcount falling by 1,500 staff, or 8 percent, in the first half.

RBS has repeatedly said there may be a "damaging but not yet destructive" exodus, but its far tougher comments in the circular indicate risks could worsen still further, particularly as profit and compensation begin to recover across the sector.

RBS, along with bailed-out Lloyds, had already agreed last month to ban cash bonuses this year for staff earning over 39,000 pounds ($64,600) a year.

It can take some hope, however, in comments made last monthby UKFI's outgoing chief executive who said he was "walking a tightrope" and aware of working a delicate balance between changing a culture and losing value.

RBS shareholders meet on Dec. 15 to decide whether to back a decision to join the APS, a plan which already has the support of the government, its majority shareholder.