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Chancellor sets RBS bonus limits | Chancellor sets RBS bonus limits |
(41 minutes later) | |
Chancellor Alistair Darling has announced that the government is limiting bonuses paid out to staff by the Royal Bank of Scotland (RBS). | Chancellor Alistair Darling has announced that the government is limiting bonuses paid out to staff by the Royal Bank of Scotland (RBS). |
"We want to see a cultural change where short-term bonuses are replaced with incentives for the long term," he said. | "We want to see a cultural change where short-term bonuses are replaced with incentives for the long term," he said. |
Mr Darling said bonuses at RBS would be cut from the £2.5bn paid last year to £340m. There would be "no reward for people who have failed," he added. | |
And bonuses will no longer be paid in cash, but in shares. | And bonuses will no longer be paid in cash, but in shares. |
Profit share | |
The bank would pay "the minimum it can with regard to its legal obligations," the chancellor said, referring to the fact that some employees are contractually obliged to receive bonuses. | |
Addressing concerns that directors are those that have benefitted most from the bonus culture in the past, the chancellor said front line staff would be getting some reward. | |
"Of course they've looked after the low paid," he explained. | |
Of the £340m in bonuses paid out, £175m will meet contractual obligations for some investment bankers. | |
Another £165m will be paid out of a profit share scheme to 80,000 front line staff. | |
But the chancellor added that "if they [employees] do not come up to the mark, that money can be clawed back". | |
Mr Darling said that bonuses at Lloyds Banking Group would be subject to the same principles of not rewarding failure and focusing on the long-term strength of the bank. | |
Bonuses 'destructive' | |
Short-term cash bonuses have been heavily criticised for encouraging bankers to focus on short term profits. | |
"These short-term cash bonuses have been so terribly destructive," said Ruth Lea at Arbuthnot Banking Group. | |
"If the taxpayer hadn't bailed out this bank in the early part of October, this bank would have been bust and these people would have been out of a job," she added. | |
Last weekend, Mr Darling defended the government's handling of the banking crisis in light of expected record losses at HBOS. | Last weekend, Mr Darling defended the government's handling of the banking crisis in light of expected record losses at HBOS. |
Lloyds Banking Group - which completed its takeover of HBOS last month - said its subsidiary would report losses of nearly £11bn for 2008. |