Members will recall that we criticised the pension allowance made to the Group Chief Executive because it was significantly higher than similar payments made to other Chief Executives. In 2018, Mr. Horta-Osorio’s pension allowance was worth £573,000, or 46% of his base salary.
We also said that his balanced scorecard objectives were far too easy and he could increase his base salary significantly for average performance. The Union published its research – which members can read here – and we sent it to all the main investor organisations. Last year, Lloyds suffered its first significant shareholder rebellion, after more than a fifth of investors refused to back its remuneration report.
The Bank has now announced that Mr. Horta-Osorio’s pension allowance will be reduced from 46% to 33% of base pay for 2019. However, in a surprising move, which the Remuneration Committee tried to slip through, his fixed share award – which he gets just for turning up to work – will increase from £900,000 to £1,050,000. The Bank says this change is to reflect the fact that Mr. Horta-Osorio will become the Chief Executive of the ring-fenced bank. A rather puzzling explanation given that the ring-fenced bank and non-ring-fenced bank are part of Lloyds Banking Group and he’s already being paid for running the whole bank anyway. It would appear that the Remuneration Committee – having been forced to reduce Mr. Horta-Osorio’s pension allowance – have flipped the proverbial two-fingers to shareholders by increasing his fixed pay so he’s no worse off. This approach epitomises superbly all that is wrong with executive remuneration.
The Group Chief Executive will also continue to benefit from a defined benefit pension, which will be worth 6% of his base salary in the 12 months before he retires. He is still the only person in the Bank who gets a final salary pension based on his salary before he retires. Everyone one else had that withdrawn years ago.