'We don't want to do this at all....Sadly because of the EU directive we've had to change'.
Britain's biggest bank, HSBC, has risked inflaming the row over City pay by saying it is to award more than a thousand of its top staff allowances to avoid the EU bonus cap.
Becoming the first UK bank to reveal how it will side-step the restriction on bonuses imposed by Brussels, HSBC is to award its chief executive Stuart Gulliver a £1.7m "fixed pay allowance" on top of his £1.2m salary to prevent his pay from falling as a result of the restriction on pay imposed by Brussels.
This has the effect of ensuring he will receive a minimum pay deal of £4.2m a year, up from £2.5m now. For 2013, bonuses took his total pay £8m, up from £6.3m the previous year.
HSBC also revealed it handed 239 of its bankers more than £1m in 2013.
Gulliver hit out against the new rule which restricts bonuses to 100% of salary, or 200% if shareholders give their approval. The allowances are not linked to performance so do not count as bonuses although are expected to face scrutiny by the European Banking Authority. It will conduct a review later this year about how banks have responded to the cap.
Other banks, including Barclays and the bailed out Lloyds Banking Group and Royal Bank of Scotland, are expected to follow HSBC by handing out allowances to top staff.
"We don't want to do this at all," Gulliver said stressing his maximum potential pay each year would fall to £11.4m from £13.8m. "Sadly because of the EU directive we've had to change," said Gulliver.
The UK government is taking legal action against the cap and Gulliver said the bank would revert to its previous schemes if this was successful.
The bank's chairman, Douglas Flint, who in the past has not received bonus payments, will not receive these allowances but is also in line for share awards because of his role in "intense regulatory change". Flint can now get maximum pay of £4.6m a year, up from £2.4m.
The size of the allowance to Gulliver was contained in the bank's annual report which showed HSBC's profits rose 9% to $22.5bn (£13.6bn) in 2013. The bank's shares fell more than 4% after the figures were released.
A year ago HSBC made $20.6bn of profits and paid 204 of its staff more than £1m.
Gulliver has taken the axe to costs since being promoted to chief executive three years ago, cutting 40,000 roles and pulling out of 60 countries or businesses.
"The HSBC group today is leaner and simpler, with strong potential for growth," he said.
The EU cap on bonuses comes into effect for bonuses paid in a year's time but banks need to make preparations now. HSBC is to ask its shareholders at its annual meeting in May to approve bonuses of 200% of salary for those individuals who are covered by the cap. These are deemed to be those regarded as taking and managing risks and, according to the European Banking Authority, anyone who earns more than €750,000 (£620,000) a year could be included.
HSBC has 1,318 of its staff who fall into this definition but only 111 of them will get shares as it had decided to give more junior staff cash payments.
Barclays has told those staff affected by the cap that they will receive these payments, called role-based allowances, each month alongside their salaries. HSBC, which has previously admitted it might increase salaries, is going to make quarterly payments of shares to those staff affected.
Gulliver is only the second bank boss to take a bonus for 2013. Antony Jenkins at Barclays has turned down a potential bonus of £2.7m on top of his £1.1m salary but still stands to receive at least £4m from long-term share plans due to be released next month while the new boss of RBS, Ross McEwan, has waived his payout. António Horta-Osório, the boss of Lloyds, is receiving a £1.7m bonus on top of his £1m salary, £500,000 pension contribution and a payout from a long-term incentive plan that could total £2.9m – half the potential sum – when it is formally revealed next month.
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