Full disclosure

4 March 2010 By George Hay Follow @gfhay

Shareholders want the UK bank’s board to explain why CEO Eric Daniels was granted a full 2.3 million pound bonus despite reporting a large loss. Daniels may have waived the payout. But if investors don’t get a proper answer, they should register their displeasure at the AGM.

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Institutional investors in Lloyds Banking Group will meet main board directors of the UK bank over the coming weeks to ask why Chief Executive Eric Daniels was entitled to his full annual bonus for 2009, despite the bank posting a 6.3 billion pounds loss.

If they are not satisfied, there could be a significant protest vote at the bank's annual general meeting on May 6, according to a person familiar with the situation. Wolfgang Berndt, chairman of the board's remuneration committee, has to stand for reelection to the board. Lloyds chairman Win Bischoff, who also sits on the remuneration committee, has to be formally elected as he has joined the bank since the last AGM.

According to the bank's 2008 annual report, Daniels is entitled to a maximum bonus of 225 percent of his annual 1 million pounds, or 2.3 million pounds. Lloyds said on Feb. 22 that he was entitled to this but was waiving the full amount.

The remuneration committee at Lloyds calculates half of the bonus via "financial targets relating to profit before tax and economic profit", and half via "a balanced scorecard covering customers, people, risk, and build franchise". Payouts would have been deferred, subject to clawback, and paid in shares.

Bischoff told reporters after annual results on Feb. 26 that the financial targets were set on a relative basis. "You set performance criteria in light of what it will be," he told the Telegraph. "The 'x' may be a minus. You are grading people not by absolute numbers but on a relative basis."

A spokesperson for Lloyds said that Daniels had successfully tackled four tasks in 2009 limiting European Commission disposals, exiting the UK's asset insurance scheme, integrating its acquisition of HBOS and creating 22.5 billion pounds of fresh capital each of which "would have occupied the time of a CEO on its own".

The spokesperson said that Lloyds shareholders had known that the bank would make a loss in 2009, and that Daniels' predictions in August that impairments had peaked, costs would fall and margins would rise had proved correct.

Lloyds also pointed out that Daniels' longterm incentive plan had not paid out in 2009, and that his total compensation was less than other UK banking CEOs.

Context News

Lloyds also pointed out that Daniels' longterm incentive plan had not paid out in 2009, and that his total compensation was less than other UK banking CEOs.

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