Lloyds Investors warn over CEO Bonus

Exclusive: Lloyds Investors Warn Over CEO Bonus

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Mark Kleinman

December 15, 2011 4:11 PM

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City investors in Lloyds Banking Group are warning that
it should not hand its chief executive a substantial bonus for 2011
after a sharp slump in its share price as well as his two month-absence
for fatigue.
I've spoken to several major Lloyds
shareholders in the last 24 hours who welcome the fact that Antonio
Horta-Osorio will be returning to his job next month yet who believe
that his temporary departure should be reflected in his annual
compensation award.
Horta-Osorio is contractually entitled to a bonus of approximately £2.4m, or 225 per cent of his base salary of £1.061m.
Underlining
increasingly intense shareholder concerns about bankers' pay, some
investors believe a seven-figure bonus for the Lloyds boss would be
"inappropriate" despite the zeal with which he has attacked a string of
legacy issues at the bank.
The big shareholders who have
expressed a view to me about Horta-Osorio's 2011 pay don't include UK
Financial Investments, the body which manages taxpayers' 41 per cent
stake in the bank.
Robert Talbut, chief investment
officer at Royal London Asset Management, said: "Any outcome for
executive directors has to reflect the returns that shareholders are
receiving."
Given that Lloyds is unable to pay a
dividend for another year (under the terms of its bail-out by
taxpayers), and the fact that the bank's share price has tumbled since
Horta-Osorio took over in March, being a Lloyds shareholder has been a
miserable experience in 2011.
In an interview I've just
done with him, Horta-Osorio declined to comment on investors' comments
about his bonus entitlement, although to be clear, the subject of his
annual pay award will not be formally discussed by Lloyds' remuneration
committee for several weeks.
Following Lloyds'
announcement yesterday that he would return to work on January 9,
Horta-Osorio said he was certain he was well enough to return but
admitted that he had had to sleep under medical supervision.
"I'm
feeling very well, I am sleeping much better. I got very close to my
battery going to zero. I started to suffer [from sleep deprivation] at
the beginning of September and by the end of October I could not sleep
at all," he told me.
"I went to see [Sir] Win [Bischoff,
Lloyds' chairman] on October 31st and said it was not working and that I
had to see a specialist."
Horta-Osorio said he was confident that he would not suffer a relapse.
"I
will be mindful of any early warning signals and if they did occur I
would consult doctors immediately. I will be restructuring my management
team and reducing my number of direct reports. It would be normal to do
that and delegate more in the second phase of our turnaround plan."
But he insisted that he would not appoint a deputy or a chief operating officer.
"I didn't do that at Santander UK and I don't think it would be appropriate here," he said.
Horta-Osorio attributed his fatigue to the urgency with which he approached the job when he arrived early in the year.
"I
had to get stuck into a number of priorities in March, some of which
were not delegateable: the fact that I had to hire several senior
people, the PPI [payment protection insurance] provision, my strategic
review, and repaying the SLS [special liquidity scheme] ahead of
schedule. I had to do them quickly because I was concerned that we were
about to go into much worse economic situation. That's why I had a sense
of urgency."
Yet he acknowledges that times have not got any easier since his enforced departure.
"The
Eurozone situation is clearly deteriorating, and given that 40 per cent
of the UK's exports go to Europe, it has to have an effect. But I know
the responsibility I have and I do not take it lightly. I'm determined
that Lloyds supports the UK economy and that we help the Treasury get
taxpayers' money back."
Separately, Lloyds has just
confirmed my story that Horta-Osorio is aiming to demonstrate his
confidence in the bank's future by acquiring another 600,000 Lloyds
shares.
Right now, the roadblocks ahead look sufficiently
challenging that even where the shares currently languish, it's a bold
vote for a turnaround of Lloyds' fortunes.