Royal Bank of Scotland risks fuelling the row over pay as it considers how to follow rivals that have devised ways to avoid the EU bonus cap and maintain their bankers' multimillion-pound pay cheques.
The 81%-taxpayer-owned bank is keen to keep pace with rivals such as Barclays and HSBC, which are both planning to hand out new allowances, which are not classed as salary and therefore do not get included in the calculations used in the bonus cap. They have been introduced to ensure bankers do suffer any reduction in pay as a result of the bonus cap being imposed by Brussels.
Data published by the European Banking Authority last year showed that the average banker based in London received a bonus of 370% times their salary – indicating the impact that the bonus cap would have on pay.
Labour on Wednesday blew open the debate on the bonus cap, which came into effect at the beginning of this year and which George Osborne opposes. The cap limits the bonuses of the most senior bankers to 100% of their salary, unless the bank that employs them wins specific approval from its shareholders to pay bonuses of 200%. Labour called on the government to clamp down on bonuses at the loss-making, bailed-out bank and use its 81% stake to ensure that none of the RBS bankers will get 200% bonuses.
RBS admitted on Wednesday night it was consulting shareholders about pay, but insisted no decisions had yet been made.
All the major banks are expected to ask their shareholders for permission to pay bonuses twice the size of their top bankers' salaries at their upcoming annual general meetings. They are also looking at ways to pay their staff even more by making payments in addition to their salaries.
HSBC, for instance, is ready to hand out share awards to 1,000 or so of its more senior staff alongside their salaries and annual bonuses. Barclays also intends to hand its investment bankers monthly allowances to maintain their overall level of pay.
The other bailed-out bank, Lloyds Banking Group, is also expected to seek approval to pay out bonuses of twice salaries and look at ways of maintaining pay levels by using some form of additional payment. Such a move would also require approval from UK Financial Investments, the body that controls the taxpayer's stake in the bailed-out banks and still owns 33% of the shares after selling off a tranche last year.
Vince Cable, the business secretary, called on RBS to show restraint and urged it to consider the business models used by other banks that do not pay bonuses. He cited the Swedish bank Handelsbanken, which does not pay bonuses and instead uses a profit-sharing system called Oktogonen, which pays out when individuals turn 60.
"What I would say to RBS is they need to show restraint. They are changing their overall banking strategy. Instead of being a global bank aimed at investment banking they're now thinking about being a British bank aimed at British customers and British business. They should look at other models like Handelsbanken, in Sweden, which is very successful and has branches in Britain and doesn't have any bonuses at all," Cable told ITV.
Handelsbanken's UK offshoot has been unable to make Oktogonen allocations to staff for the past three years because of a dispute with HM Revenue & Customs about whether it is disguised remuneration – pay that is not being taxed.
The business secretary insisted that the government had not yet seen any proposals from RBS about its plans to tackle the bonus cap and referred to remarks by David Cameron warning about the bonus rules leading to increases in salaries to allow staff to receive the same amount of money.
"I think that's a legitimate concern that we can take into account,' Cable said.
"Most banks will be trying to get the cap lifted to 200%," said Greg Campbell, employment partner at the law firm Mishcon de Reya. Campbell said there had already been major changes to pay, when in the past bonuses across the City might have been as large as 10 times salary.
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