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Royal Bank of Scotland, Northern Rock and Lloyds Banking Group - Treasury Contents

Examination of Witness (Question Numbers 200-219)


12 JANUARY 2010

  Q200  Nick Ainger: Mr Daniels, is it correct that if the integration of Lloyds and HBOS is successful, the Lloyds Board will receive bonus payments totalling £2.4 million, with you yourself in line for a bonus of £828,000, being deferred to 2012?

  Mr Daniels: No, I do not believe that is quite correct. What we have are three separate programmes where members of our management team receive their base salaries, they have a bonus which is deferred and has a clawback element to it, and then there is the third part, which I think is what you are referring to, which is a long-term compensation piece. The long-term compensation is based on the earnings per share and whether we are hitting those targets, the economic profit that Lloyds generates over a three-year period, and the third part is the successful integration and achieving the £1.5 billion or more of synergy savings that we have promised to the shareholders.

  Q201  Nick Ainger: When you last appeared before this Committee we exchanged comments around bonus payments, if you remember.

  Mr Daniels: I do.

  Q202  Nick Ainger: One of the things that you told the Committee was that you had taken legal advice and that in many cases the bonus payments that were being made were legal contractual obligations. Is this package which you have just referred to a legal contractual obligation or is it discretionary?

  Mr Daniels: I will have to refer back to the documentation but my understanding—and please do not take this as set in concrete—is that the Rem Committee will have discretion around that long-term compensation. In other words, if the Remuneration Committee believes that, even though we may have hit the targets, the way in which we hit them was not the best way, or that the targets in retrospect were too soft, they could apply discretion. I believe that is the case.

  Q203  Nick Ainger: Do you appreciate that, with 15,000 redundancies already indicated and somehow analysts indicating that the redundancies could go above 23,000-25,000, your work force will stand amazed that the Board is proposing to award itself very substantial sums, whether the figures I quoted are accurate or not but still very substantial sums, as a result of a merger which has resulted ultimately in such large redundancies? Do you understand how they will be feeling?

  Mr Daniels: If I may, Mr Ainger, there might be one clarification that is worthwhile. Our Remuneration Committee is completely independent from the management. In other words, the management has no say in its own bonuses or compensation. The Remuneration Committee of the Board stands separate and they make those decisions. So I would say that the question of employees feeling not good because management are voting themselves bonuses is not quite the case. That said, what we believe is that the merger, which has inevitable overlap—we have two computer systems, we have two sets of branches and so on; there is duplication and so undoubtedly we will have some job losses. That is inevitable. What we try to do is to make absolutely sure that with all of the job losses that are incurred, we try and cover as much as we can through natural attrition, and in some cases voluntary redundancy. It is an absolute last resort that we have forced redundancies or involuntary redundancies. We have been very successful at placing people, so even though somebody may be displaced in one area of the bank, we try and find them a job in another part of the bank. Some loss of role is inevitable but we have a very good track record and it is a point of pride for us to treat our people as well as we possibly can. We fully understand that the way our customers will feel about us is wholly dependent on how our staff feel about us, because they will broadcast that; they will transmit that to our customers.

  Q204  Nick Ainger: Could you tell the Committee how many of your staff that are earning in excess of £39,000, which was the agreement reached with the Government, would not receive a cash bonus, so presumably, if they are receiving a bonus, they will receive it in shares? How many of your staff who are earning in excess of £39,000 will be receiving bonuses in the coming weeks?

  Mr Daniels: I do not have the number to hand but I would be happy to provide it. What I would like to do, Mr Ainger, is to remind you perhaps that we are not an investment bank. We are a commercial bank, and a point that I tried to make the previous time I appeared before the Committee is that our average employee makes about £25,000, which is the national average; that the average bonus is about £1,000. So we are not looking at investment banking bonuses. What we have also said is that we fully embrace the G20 principles where we try and align better the view of risk and the tenor of the bonuses that we pay so that they are much better aligned than before, and we think that is a very good thing to do.

  Q205  Nick Ainger: But in terms of the position that the bank is currently in, where the half-year results were that you were in effect making substantial losses after impairment costs had been taken into account, obviously many of your shareholders are very concerned about the level of the share price and whether they were informed fully, and we have had a discussion about that earlier. The fact that this new banking group is still not in profit, should you be paying any bonuses, certainly to senior staff who are already on very good salaries?

  Mr Daniels: I think that is a very fair question but, if I may, let me just correct one misstatement perhaps quickly. The first is that the old Lloyds TSB last year in fact did make a profit. At mid-year the enlarged Lloyds Banking Group did make a statutory profit. On a management book basis we made a loss but on a statutory basis we made a profit. Now, that does not mean that we are not very mindful of the thrust of your question but I did feel that I wanted to correct that. As you have undoubtedly heard before, we believe that we have an obligation to pay our people fairly, to compensate them as they would be compensated in the market. We also believe that we should reward people who have extraordinary performance that contributes to the long-term health of the business and therefore to the shareholders. So I do not have any disagreement that clearly the performance of the business has to be taken into account but also the market position has to be taken into account and the performance of the individual.

  Q206  Chairman: Can you clear up for us just in case the perception is that your bonus, which is based in part on synergies and integration, therefore will not be increased the more job losses there are in Lloyds?

  Mr Daniels: The long-term compensation, which is in part dependent on the amount of synergies received, is completely independent. In other words, there is a pound figure. If there are two people who lose their roles or ten people, that is not part of the determination.

  Q207  John Mann: How many of your staff have indicated to the bank that they might leave this country if there is a change in personal taxation?

  Mr Daniels: To the best of my knowledge, that question has not been asked and I have not had any particular correspondence or communication with our employees about leaving the country. What I can tell you however is that we are not an investment bank. Again, the average of our compensation base salary is £25,000 and the average bonus is £1,000, so I think that the question is more directed toward investment bankers.

  Q208  John Mann: The synergy savings, the £1.5 billion was the initial figure. How much of that is through labour costs?

  Mr Daniels: I could not tell you offhand. Very clearly—

  Q209  John Mann: Roughly.

  Mr Daniels: I would not venture a guess but very clearly, what we—

  Q210  John Mann: You are in charge. There is a big difference between say 80% and 10% out of £1.5 billion. Percentage-wise, you must be able to hazard a reasonable guess.

  Mr Daniels: If I had the number to hand, I assure you I would give it to you. I do not, and if you would allow me to, I would be happy to write to you.

  Q211  John Mann: So you will send us that. How many jobs have gone since you took over HBOS?

  Mr Daniels: We announced at mid-year, which is the latest public announcement that we have had, that there were 6,000 losses of role. Now, I would tell you emphatically that that does not mean that there are 6,000 people who have left the organisation. Again, what we seek to do is to use natural attrition and we seek to place people as well as we can so that does not mean that there are 6,000 people who were thrown on the street.

  Q212  John Mann: You are a banker so you are good at figures. You are saying that 6,000 people no longer work for the bank who did do?

  Mr Daniels: No. There are 6,000 roles that have—

  Q213  John Mann: So how many people?

  Mr Daniels: That is what I am trying to explain to you. Excuse me. There are 6,000 roles that have been eliminated. Now, the people who occupied those roles, as, for example, we lose somebody in—

  Q214  John Mann: So is that 6,000 full-time complements?

  Mr Daniels: If I may, somebody who loses their role then can replace somebody else who decided to leave to go to Australia.

  Q215  John Mann: I understand that. I am trying to work out how many jobs have gone. When you say 6,000, that is 6,000 roles full-time that have gone?

  Mr Daniels: That is 6,000 roles that have been made redundant, yes.

  Q216  John Mann: Because your bank stated that there were 11,000.

  Mr Daniels: I am unfamiliar with that statement. I think the last public statement that we made was at our mid-year results and at that time we said 6,000 people.

  Q217  John Mann: It was not that long ago and a few weeks ago 11,000 was what the bank's spokesman said to the media.

  Mr Daniels: I am unfamiliar with that.

  Q218  John Mann: So that was wrong; it is 6,000.

  Mr Daniels: I would be happy to clarify that. At mid-year our number was 6,000.

  Q219  John Mann: The main union in the bank says it is 15,000, so there is a big disparity. They say 15,000, somebody has briefed saying 11,000 and you say 6,000. That is a huge disparity.

  Mr Daniels: I think there might be time periods of difference but I am quoting the last public announcement that we made.

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