Banking Giant In Britain to Sharply Cut Staff Bonuses

LONDON, Feb. 17 -- The Royal Bank of Scotland, the troubled giant now 70 percent owned by the British taxpayer, announced Tuesday that it would drastically slash staff bonuses this year.

The government-approved decision reflects growing public anger about multimillion-dollar bonuses paid to executives of banks that collapsed and were rescued by multibillion-dollar taxpayer-funded bailouts amid the global financial crisis.

"A fundamental reform to pay and reward is needed to reflect the reality of the situation the company is in," the bank's chairman, Philip Hampton, said in a statement, adding, "We fully recognise, as a company, that we have to change materially not just the business we do but also the way we do business."

Hampton vowed that there would be "no reward for failure" and that "no bonuses or pay increases will be made to staff associated with the major losses suffered in 2008."

Bonuses have been targeted by the Obama administration in the United States and by British Prime Minister Gordon Brown, who has said that a banking culture that rewarded risky, short-term deals was partly to blame for a crisis that has sent unemployment and home repossessions soaring in Britain.

"We want to see a cultural change where short-term bonuses are replaced with incentives for the long term," Alistair Darling, Britain's chancellor of the exchequer, or finance minister, said in his own announcement of the bonus cuts.

Darling said the bank's bonuses would shrink from the 2.5 billion pounds paid last year to about 340 million pounds this year. Last year's bonuses were worth about $5 billion in terms of exchange rates at the time; this year's would be worth about $485 million at current rates.

The bank also said it would pay deferred bonuses, in the form of "subordinated debt," or bonds, to staff members "essential to the bank's recovery and who might otherwise be at serious risk of leaving." The statement did not identify those employees or say how much the bonuses might cost.

Darling said the bank would pay the "absolutely legal minimum" in bonuses to cover its obligations under existing employee contracts. He said a little more than half of the bonus money would go to investment bankers. The rest, he said, would go to 80,000 lower-paid staff members who depend on annual bonuses for their living.

Darling noted that the bank reserved the right to reclaim, or "claw back," bonuses paid to employees who do not perform up to standards.

The bank also announced a pay freeze for senior staff worldwide, as well as at its U.S. operations and in its investment banking division. Other employees would receive below-inflation pay increases, it said.

Derek Simpson, co-leader of Unite, Britain's largest trade union, praised the bank's decision to honor bonuses for lower-paid staff. He said employees earning as little as $17,000 a year should not be penalized in the "hunger of the pack" to slash executives' bonuses.

"To punish workers for the actions of senior bankers represents a demand for a pound of flesh from the wrong people," he said. "Staff are among the victims, not the culprits of the financial crisis."