Lloyds bank claws back £1.5m bonuses from directors

Bailed-out bank partially reclaims bonuses that had been awarded before it lost £3.2bn to settling claims for missold PPI

guardian.co.uk, Jill Treanor, Monday 20 February 2012

Lloyds bank chief executive Antonio Horta-Osorio has targeted reclaiming
 bonuses since he took over in March 2010. Photograph: Leon Neal/AFP/Getty Images

Lloyds Banking Group is to claw back at least £1.5m from five former and current executives and eight other senior managers, to penalise them for £3.2bn of losses the bailed-out bank incurred after the bonuses were awarded.

The move, which requires former chief executive Eric Daniels to hand back 40% – or £580,000– of his £1.45m bonus, puts pressure on rival banks to take similar action for bonuses they awarded before being forced to make provisions for payment protection insurance.

But there was also criticism over the size of the clawbacks – just 5% in some instances – and the number of former bankers involved in the clawback which was announced on Monday following protracted negotiations with those involved.

Richard Lloyd, executive director of the consumer body Which? which championed the cause of PPI, said: "Lloyds customers will think it's absolutely not enough and it raises the question of how many people should be held accountable for £3.2bn of PPI mis-selling losses."

Lloyd, who had already written to banks to urge them to claw back bonuses, said: "We expect and hope that the same action will be taken at the other banks involved."

Four members of Daniels' executive time at the time – Helen Weir, Truett Tate, Archie Kane and Tim Tookey – will each have to pay back 25%, which amounts to £900,000 in total.

The remaining eight are having 5% sliced off their undisclosed bonuses for 2010. They include members of the executive committee such as Carol Sergeant, who was chief risk officer, Mark Fisher, group operations director and Angie Risley, group HR director. The bonuses were paid in shares and have not yet been released.

A spokesman for shareholder body Pirc said: "We think it's a very good precedent. It's really good in terms of demonstrating that it can be done. It sets a precedent. What about other banks?"

Lloyds insisted that the bonus pool for 2011 will also be reduced because of the PPI provision. Barclays and Royal Bank of Scotland – which took provisions of £1bn each – are also taking account of PPI in their 2011 bonus pools. HSBC took a £280m provision but has not indicated whether PPI will make a dent in its bonuses. Industry sources cautioned these banks might be unlikely to pursue clawback, however.

In becoming the first UK bank to reclaim executive bonuses – a new process implemented by the industry following the 2008 banking crisis – Lloyds insisted "its decision is based entirely on the principle of 'accountability' and in no way on culpability or wrong-doing by the individuals concerned".

António Horta-Osório, who took over as chief executive from Daniels on 1 March last year, ordered the provision immediately – sending a shockwave through the industry. Other banks were forced to follow suit when Lloyds stopped fighting the process of awarding compensation through the courts.

Yet just weeks before, Daniels had bowed out, heralding a return to profitability following the controversial takeover of HBOS during the banking crisis.

Weir, who used to run the retail bank and last week was appointed finance director of department store John Lewis, is to take a £218,000 reduction. Tate, head of the corporate bank who is leaving in the coming months, takes a £262,500 reduction, and Kane, the former head of the insurance arm, is now £191,000 worse off.

Tookey, who is to face the City on Friday when he announces the extent of Lloyds's losses for 2011, is having a £236,000 reduction. He is due to go at the end of the month, leaving the bank without a finance director, as a starting date has not be set for George Culmer, who is joining from insurer RSA.

The Financial Services Authority, which has been encouraging banks to look for ways to claw back bonuses following the PPI losses, has been "kept informed throughout the deliberations leading up to the decision".

Tackling the clawback had been top of Horta-Osório's agenda when he returned to work last month, following two months off after he failed to sleep for five consecutive days in October.

The £1.45m bonus for Daniels had been deferred into shares in two equal tranches, which he was to receive in March 2013 and March 2014.

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