Outside the marginals

a commentary on the politics that followed the UK 2010 & 2015 elections

Banks Horsing Around at Customers’ Expense

Lloyds Banking Group has been fined £28m for “serious failings” in relation to bonus schemes for sales staff.

The Financial Conduct Authority said it was the largest fine that it or the former Financial Services Authority had imposed for retail conduct failings.

The bonus scheme pressurised staff to hit sales targets or risk being demoted and have their pay cut, the FCA said.
BBC News Website, 11 December 2013: Lloyds bank fined record £28m for ‘serious failings’

£28m is chicken-feed! “More than one million products were sold to nearly 700,000 customers over the period.” So that is a £28.00p slap on the wrist for each product sold!

There has to be a better sanction.

I have previously suggested:

[Can we in the UK] get some level of control by:

  1. Getting the shareholders to vote annually – in advance – for the size of the executive remuneration pool (to cover salary, benefits, pension, bonuses, golden parachutes, golden handcuffs, golden hellos and all other such payouts etc. etc.)
  2. Any losses made should be recovered from this pool
  3. Any fines charged against the company should be paid from this pool
  4. Should losses or fines exceed the pool, the deficit should be recovered from previously awarded deferred bonuses (share options etc.)

Thus in this case the £28m would have to be paid from the executive remuneration pool. If the pool had been set up a number of years ago this pool would be holding the value of previously deferred bonuses. Current directors might want the fine to be paid from these deferred bonuses “payable” to the directors “in control” at the time of the offence, rather than from their own salaries. This would be contrary to point 4 above – but could lead to interesting discussions.

The latest Financial Statements from Lloyds Banking Group show Directors’ Emoluments totalling £7,172,000 for two executive directors and nine non-executives and five former directors who served during the year. This does not include senior executive managers.

Lloyds Banking Group Directors Emoluments 2012

Lloyds Banking Group Directors Emoluments 2012

In addition there is a Directors’ Long-Term Incentive Plan (same reference as above)

Lloyds Banking Group Directors' Long-Term Incentive Plan 2012

Lloyds Banking Group Directors’ Long-Term Incentive Plan 2012

To me this looks as if there are about 29 million shares being conditionally held. Putting a value on these shares is hard – but Lloyds Banking Group shares closed tonight (11 December 2103) at 77.38p.

Directors also hold various share options which are detailed in the same report

So a £28m fine levied on a directors’ emoluments pool (rather than on a company capitalised at £39.2bn) would hurt – but isn’t that the idea?

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