Lloyds scraps buyout bosses' bonuses after NEC bonanza

Lloyds Banking Group has axed a lucrative pay scheme for its private equity bosses following huge windfalls triggered by the controversial sale of Birmingham's NEC exhibition venue.

Sky News can reveal that Lloyds' board has scrapped a deal-by-deal compensation structure for managers at LDC, one of the UK's most active private equity investors.

The decision to abolish a co-investment scheme comes months after LDC's top two executives - chief executive Martin Draper and chief portfolio officer Chris Hurley - shared a combined windfall said to have been worth more than £40m from the NEC Group sale to Blackstone.

The deal, which valued the entertainment complex at more than £800m, came just three years after LDC bought it from Birmingham City Council for just £307m.

LDC is a shareholder in some of the UK's best-known businesses, including Sir Terence Conran's restaurants group, the Rush chain of hair and beauty salons, and the Seabrook snacks brand.

It has also backed Fever-Tree, the phenomenally successful mixers producer, and the now-defunct Manor Formula One team.

Under LDC's previous pay arrangements, executives benefited from a standardised private equity carried interest scheme, but saw their awards augmented through a deal-by-deal co-investment plan which paved the way for lavish windfalls.

The latter part of the structure has now been scrapped, meaning that overall payout levels have been sharply reduced, according to people briefed on the details.

Managers and other employees at LDC were informed about the changes in recent weeks.

Sources said that Lloyds had begun a review of LDC's pay structures last May, before the NEC had been sold but at a time when the board of Britain's biggest high street bank had already become aware of the prospect of massive payouts to Mr Draper and Mr Hurley.

Lloyds' directors then signed off the overhaul in November, just weeks after the NEC was sold.

The fact that the issue was debated and resolved in the Lloyds boardroom reflects a growing sense of embarrassment among some of the bank's directors about the windfalls, one source said.

The payouts for Mr Draper and Mr Hurley for the NEC deal represented a multiple of the annual remuneration packages handed to Antonio Horta-Osorio, Lloyds' chief executive, during his eight years running the bank.

This week, Lloyds said that Mr Horta-Osorio had offered to relinquish his right to a pension linked to his final salary following criticism from staff and investors.

LDC's pay arrangements have also been a bone of contention within the private equity sector for many years, particularly during the eight-year period when Lloyds was partly owned by British taxpayers.

Lloyds has frequently been tipped to sell LDC, but insists that its policy of backing medium-sized UK-based companies means it fits well with the bank's broader strategy of "helping Britain prosper".

The precise size of the windfalls awarded as a result of the NEC sale have not been disclosed, although insiders suggest that the likely overall figure was in excess of £100m.

The disposal represented the biggest exit in LDC's history, and raised awkward questions about the judgement of Birmingham City Council when it agreed to sell the NEC for just over £300m.

While the company has been transformed in recent years by a series of acquisitions, significant capital spending and performance improvements, the gulf in value between the two transactions was nevertheless a stark one.

At the time of the NEC auction process, LDC said that "like all private equity firms, our team invests in the companies we back, alongside our funding partner Lloyds Banking Group and the management teams we support".

It declined to comment this week on the details of its amended pay arrangements but said: "LDC's remuneration structure and incentive schemes are in line with the private equity industry."

Lloyds declined to comment.