Exclusive: Lloyds Set To Pay Boss £1.4m Bonus

Mark Kleinman, City Editor
Exclusive: Lloyds Set To Pay Boss £1.4m Bonus

Lloyds Banking Group is finalising plans to pay its chief executive an annual bonus of approximately £1.4m, although he will not receive it until taxpayers' stake in the bailed-out bank breaks even.

I have learnt that directors of Lloyds will meet early next week to sign off on the plan, which will be announced alongside the full-year results of Britain's biggest mortgage lender next Friday.

Sky News revealed earlier this month that Antonio Horta-Osorio's bonus would be approximately £1.5m, and that he would not receive it until the taxpayer's 39% stake returns to the black, which it will do if Lloyds' share price reaches 73.6p. The shares were trading on Friday morning at around 54p.

People close to Lloyds said that the final figure for Mr Horta-Osorio's bonus, which will be paid entirely in shares, would not be decided until next week and that it was still subject to adjustment, but added that £1.4m was broadly the number proposed by Lloyds’ remuneration committee.

Wary of a potential political backlash, Lloyds is understood to have submitted its proposal to pay Mr Horta-Osorio a bonus to UK Financial Investments (UKFI), the body which manages the taxpayer's stake in the bank, in recent days. George Osborne, the Chancellor, has also been informed of the plan.

Lloyds' concern stems from the fact that it was forced to set aside just over £2bn in 2012 to compensate customers who were mis-sold payment protection insurance (PPI) policies.

That figure is certain to increase when Lloyds unveils full-year results next week, with another substantial provision expected to be taken for the fourth quarter of the year.

Although the PPI mis-selling itself took place long before Mr Horta-Osorio was poached from Santander UK, Lloyds was this week fined more than £4m by the Financial Services Authority for shortcomings in the way it handled complaints.

Lloyds is also expected to announce a "material" provision for the mis-selling of interest rate swaps to small businesses in next week's results.

Last year, the Lloyds chief executive waived his annual bonus after taking several weeks of leave as a result of fatigue.

Under the terms of his contract, Mr Horta-Osorio is eligible for an annual bonus worth 225% of his £1.061m salary, equating to about £2.3m. If Lloyds does pay the anticipated figure of about £1.4m, it would equate to roughly 60 per cent of the maximum potential award. The chief executive is also eligible for a long-term share award worth up to £3m, subject to deferral periods, for each year of service.

They added that it was still possible that he would waive the payout although a political backlash looked unlikely, one insider said.

In awarding Mr Horta-Osorio his bonus, Lloyds directors are expected to point towards the progress he has made in reshaping the bank since he took over nearly two years ago. Bad debt charges are expected to have fallen again, with customer service targets also having been met.

Last year, Lloyds announced a statutory loss for 2011 of £3.5bn, a figure which included £3.2bn of PPI compensation provisions. Analysts expect that the bank will report a loss for 2012 of £544m on the same basis, while the underlying performance of Lloyds' business, which strips out one-off charges such as PPI, is forecast to have been profitable to the tune of more than £2bn.

Allies of Mr Horta-Osorio pointed out that Lloyds' shares were the top performer in the FTSE-100 last year, rising by 85 per cent, and among the leading risers in the European banking sector.

The bosses of Barclays and Royal Bank of Scotland have waived their bonuses for 2012 amid various reputational crises. The chief executives of HSBC and Standard Chartered are expected accept their payouts, while the boss of Santander UK has already accepted her multimillion pound award.

Lloyds declined to comment.

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