Reining in executive compensation at recipients of government aid is not just a U.S. preoccupation. Last week, several European nations announced they were considering limits to executive compensation for those receiving government aid, and today, Royal Bank of Scotland (RBS) announced that it has reached an agreement with its majority shareholder, the U.K. government, on salaries and bonuses for 2008 and 2009. RBS and the U.K. government have agreed to the following:

  • No bonuses or pay increases will be made to “staff associated with the major losses suffered in 2008.”
  • As previously announced, Board Executive Directors will receive no bonus for 2008 performance and no pay increase in 2009.
  • Pay will be frozen for directors and executives worldwide, and for most staff in the U.S. and the Global Banking & Markets division. On average, other staff will receive “below inflation” pay rises.
  • No discretionary cash bonuses will be paid in 2009 for performance in 2008. Only legally binding guaranteed bonuses will be paid. Total cash bonus payments for 2009 will amount to £175 million, a 90% reduction in total cash spend.
  • Although the existing 10%-of-salary profit share “bonus” scheme will be terminated, equivalent payments will be made in monthly award packages for staff below managerial grade.
  • Staff who are essential to the bank’s recovery and who might otherwise be at serious risk of leaving, and who remain with the bank, will receive a deferred award for 2008. The deferred award will be released in three equal annual installments beginning June 2010 and payable in subordinated debt of RBS. In individual cases up to 100% of these deferred awards will be subject to forfeiture at the discretion of the Remuneration Committee and if “future losses arise in relation to their 2008 activities.”

Commenting on the changes, RBS Group Chairman Sir Philip Hampton said: “Our over-arching aim is to restore the standalone health of the Group as soon as is practicable. In doing so, we need to retain the trust of our customers, shareholders and the wider public while delivering the best possible commercial performance.”