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RBS drops bonus plan as British agency balks

Royal Bank of Scotland’s properties include Providence-based Citizens Bank.
Royal Bank of Scotland’s properties include Providence-based Citizens Bank.Jonathan Wiggs/Globe Staff/File

LONDON — The Royal Bank of Scotland said Friday that it would drop a plan to pay its bankers bonuses of up to two times their annual salaries after an agency that manages the British government’s stake in the lender refused to back the proposal.

The decision by United Kingdom Financial Investments, which oversees the government’s 81 percent stake in the bank, adds to a firestorm over pay in Europe.

RBS, based in Edinburgh, had hoped to put the plan — which would have allowed the maximum bonuses permitted under European rules — to a vote by shareholders at its annual meeting in June.


But the financial agency indicated that it would vote against any resolution that included a 2-to-1 bonus ratio, RBS said Friday. Given the government’s large holding, the plan was not likely to pass, the bank said.

RBS has sought to bring compensation levels in line with those of its rivals, which also seek shareholder approval for changes that would let them pay up to the maximum bonus level in a bid to retain employees.

The bank said its board wanted the “flexibility on variable to fixed pay ratios that is now emerging as the sector norm” and noted the compensation would “be subject to performance conditions including claw back for conduct issues that may emerge in the future. This position was understood during consultation with institutional shareholders.”

RBS is the parent company of Citizens Bank.

On Thursday, shareholders at the British bank Barclays vented their frustration over rising compensation levels during a heated question-and-answer session at the lender’s annual meeting.

Barclays defended the decision to raise the bank’s compensation pool for 2013 despite a loss in the fourth quarter.

David Walker, the Barclays chairman, said the bank faced strong competition to attract and retain employees, particularly in the United States, and that raising compensation levels was necessary. He noted that overall pay at the bank had decreased in the previous two years and remained below 2010 levels.


A European law passed last year limits the pay of certain bankers and risk takers at financial institutions to the equivalent of their annual salaries, or to two times their salaries if approved by shareholders. The new rules went into effect in January, but do not apply to pay for performance in 2013.

RBS set aside $968 million to pay for bonuses in 2013, 15 percent less than a year earlier.