Examination of Witness (Question Numbers
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
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
Mr Daniels: I will have to refer
back to the documentation but my understandingand please
do not take this as set in concreteis 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 overlapwe 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
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
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
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
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
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.