Lloyds Banking Group and Royal Bank of Scotland (RBS) Group are to offer loans to staff who have seen their bonuses deferred for up to three years.
In an effort to align reward with the long-term interests of the bank’s shareholders, including UK taxpayers who own 70% of the bank, RBS has announced there will be no discretionary cash bonuses for 2008. However, in order to offer financial support to employees relying on their bonuses, awards will be paid in subordinated debt which will be deferred over three years and subject to clawback if performance targets are not met.
Subordinated debt is referred to as such because the debt providers, or the lenders, have subordinate status in relationship to the normal debt.
Staff will only be able to borrow up to the amount not subject to clawback, and any borrowing will be subject to interests charges similar to the amount charged to retail customers for a secured loan. A spokesperson at RBS said: “To allow staff to manage their finances we have already said that we intend to allow staff to borrow against a portion of their deferred award, but we have yet to complete details on how this will work.”
In a similar move, Lloyds Banking Group will be offering a commercial loan scheme for employees receiving deferred bonus payments in the form of Lloyds Banking Group subordinated debt. A spokesperson said: “This does not apply to the vast majority of staff who have now received their cash bonus payments, which were typically less than £1,000. The loan scheme is voluntary, will be run on commercial lines and will only be available on a defined proportion of the bonus.”
However, 8,000 ex-Lehman Brothers staff who retained their jobs and now work for Japanese bank Nomura will receive annual bonuses this year.
Nomura did not pay for its acquisition of the European, Asian and Middle Eastern operations of bankrupt Lehman Brothers last year, but did assume the responsibility and cost of remunerating its new employees – including annual bonuses. Nomura was unable to confirm any values of the bonuses awarded.