Royal Bank of Scotland has indicated it will bow to pressure to slash executive bonuses after a bruising row with the Treasury, according to reports.
The bank, which was compelled to give the Government power over its bonus pot as part of its entry into a scheme to insure its toxic assets, is thought to want to cool tensions over the level of rewards it is able to pay.
According to the Financial Times, RBS insiders have said that pay-outs in its investment banking division would be “at the low, low end of the scale”, even if that meant losing experienced staff to better-paying rivals.
It has been reported that RBS directors could threaten to quit the bank if the Treasury used its power to imposed a cap on the bonus pot.
The Government has warned it might veto the size of the RBS bonus pool for 2009 - thought to have increased by 50 per cent on last year to £1.5 billion in the wake of rising stock markets and the beneficial effects of stimulus measures on the economy.
RBS, which will be 84 per cent state-owned under the terms of the Asset Protection Scheme (APS), has to agree the size of its pay-outs with UK Financial Investments (UKFI), the body set up to manage the public stakes in financial firms.
The bank has indicated that a clampdown on the amount it pays to its staff would put it at a competitive disadvantage and threaten its ability to recover and therefore return the taxpayer’s £46 billion investment.
On Thursday City Minister Lord Myners appeared to stoke the argument by saying highly-paid bankers should “come back into the real world”.
Gordon Brown played down suggestions that RBS would be singled out by saying all banks would follow international guidelines and “nobody is being discriminated against”.
As attention focused on the issue, Barclays’ investment arm, Barclay Capital, increased basic salaries for its 21,000 employees as it looks to boost staff compensation in line with competitors and comply with G20 guidelines on bonuses.
Salaries for managing directors are capped at £150,000, with the remainder of bankers’ pay derived from a variable bonus.