UK’s biggest banks slash bonus pools by more than £1bn

The UK’s five largest banks cut bonus pools by more than £1billion last year and most also reduced pay and staff numbers, according to Financial Times analysis, potentially blunting political attacks on banker excess ahead of the general election.

The sweeping changes to remuneration are revealed in figures based on the annual financial statements of Barclays, HSBC, Lloyds Banking Group, Royal Bank of Scotland and Standard Chartered. Overall, bonuses at the five banks fell from around £6.5billion in 2013 to roughly £5.5billion in 2014, a drop of about 15 per cent when the figures for all five are totalled in sterling.

The data also show the five banks set aside a little less than £10billion to deal with fines, conduct and other litigation costs last year, including about £4.7billion related to the mis-selling of payment protection insurance products to UK customers.

Competition between the political parties over who can be toughest on bankers has intensified ahead of May’s election.

George Osborne, the Conservative chancellor, used his recent Budget to increase the levy that banks pay while the Labour party is promising a windfall tax of 50 per cent on bonuses above £25,000.

“Since 2009, the bonus pool has halved and there have been sweeping changes made to the way that banks pay their staff,” said the British Bankers’ Association, adding that bonuses are often deferred for several years and paid partly in shares.

The fall in last year's bonuses was sharpest at Barclays, which is still restructuring its business in the aftermath of the financial crisis and at state-owned RBS, which recorded a £3.5billion loss for 2014 and has promised the government it will reduce pay costs.

At Barclays, the bonus pool was down 22 per cent for 2014 and at RBS it fell 21.46 per cent. Barclays staff still fared better overall though, with average variable pay of more than £14,000 awarded for 2014. This compares with the average of £4,400 a head awarded at RBS, whose top managers turned down bonuses for the year.

The figures are calculated by dividing the bonus pool by the average number of staff at the beginning and end of the year. HSBC and Standard Chartered, both largely focused on markets outside the UK, had more modest falls in bonus pools, as did Lloyds.

Banks said some of the fall in variable compensation came as staff were given new “role-based allowances” and higher basic salaries to compensate for a cap on bonuses brought in at the start of 2014.

Some practices may have to be undone after the European Banking Authority voiced concern they could be bonuses by another name.

“Following the publication of the EBA’s consultation on its guidelines on sound remuneration policies, the group will be reviewing these allowances to ensure they remain compliant with the amended remuneration codes,” said Standard Chartered, which paid $47million in the allowances last year.

Overall, the allowances have not compensated for the bonus cuts. Staff costs per head, including salaries, social welfare, pensions and payouts for redundancies, fell at Lloyds, RBS and Barclays last year and rose at the more internationally focused HSBC and Standard Chartered.

Average staff numbers fell by more than 17,000 across Barclays, Lloyds, RBS and HSBC last year, even excluding the impact of the sale of Lloyds’ TSB bank and RBS’s Citizens business in the US.

Financial Times