Bosses at banks bailed out by the Government will forgo millions of pounds in pay and bonuses this year, as the City watchdog also issued a warning that the days of fat cat handouts are numbered.
Prime Minister Gordon Brown said banks seeking help under the unprecedented state rescue deal had signed up to conditions that would “bring an end to rewards for failure”.
The Government pledged no cash bonuses would be paid to board members this year at Royal Bank of Scotland and soon-to-be-merged high street giants Lloyds TSB and HBOS.
RBS’s ousted chief executive Sir Fred Goodwin has also agreed to waive a pay-off, which includes the right to a year’s salary - £1.29 million last year.
The Financial Services Authority meanwhile wrote to all chief executives of UK banks cautioning that while it will not determine pay packages, the regulator will not tolerate “unacceptable” remuneration policies.
City bankers were paid millions of pounds in bonuses last year, despite the mounting crisis in the sector.
Barclays investment banking chief Bob Diamond was one of the highest paid, picking up nearly £22 million in salary and bonuses.
Sir Fred earned more than £4 million at RBS, including a £2.86 million bonus.
But the Prime Minister and Chancellor Alistair Darling have made it clear that there will be “strings attached” to the Government’s agreement to pump £37 billion into RBS and HBOS.
The PM said: “Going forward, rewards will only be based on performance and long term value creation.”
Last week he announced that City bonuses would be curbed at banks already bailed out by the Government, amid concerns the cash would be used to line executives’ pockets.
The banks not taking part in the Government stake-buying scheme have not had to sign up to the stringent conditions on pay and dividends, but it is expected that incoming FSA guidance on remuneration will limit future rewards across the whole industry.
Barclays declined to comment on its policy towards pay going forward, while HSBC said it had made no agreements with the Government on pay.
Mr Darling refused to comment on controversy surrounding RBS boss Sir Fred Goodwin, who still reportedly stands to benefit from a pension worth more than £500,000 on leaving the group.
Bonuses awarded during this year’s main “bonus season” were £1.5 billion up on last year’s figures, new research showed.
But the rise - from roughly £26.5 billion to £28 billion - did not come from the financial services sector, where bonus growth was broadly flat.
The findings from the Office of National Statistics, published in the Economic & Labour Market Review, also showed the rise was at a slower rate than in previous years.
In both 2006 and 2007 overall bonus payments were up £3 billion - twice the current rate of increase.
While the financial services sector was not responsible for the recent growth, it still accounted for approximately 60 per cent of all bonuses paid between December 2007 to April 2008.
The research used data from the Average Earnings Index - the National Statistics measure of short-term earnings growth - to look at bonuses paid between December and April as this is traditionally the time when they are awarded.