LONDON â€" The Royal Bank of Scotland said Friday that it would drop a plan to pay its bankers bonuses of up to two times their annual salaries after an agency that manages the British government’s stake in the lender refused to back the proposal.
The decision by United Kingdom Financial Investments, which oversees the government’s 81 percent stake in the bank, follows a firestorm over pay in Europe.
R.B.S., based in Edinburgh, had hoped to put the plan â€" which would have allowed the maximum bonuses allowed under European rules â€" up for a vote by its shareholders at its annual meeting in June.
But the agency indicated that it would vote against any resolution that included a two-to-one bonus ratio, R.B.S. said on Friday. Given the government’s large holding, the plan would most likely not have passed, the bank said.
The move could potentially put R.B.S. at a disadvantage compared with its rivals in Europe, which are also seeking shareholder approval for changes that would let them pay up to the maximum bonus level in a bid to retain employees.
The bank said that its board wanted the “flexibility on variable to fixed pay ratios that is now emerging as the sector norm†and noted that the compensation would “be subject to performance conditions including claw back for conduct issues that may emerge in future. This position was understood during consultation with institutional shareholders.â€
On Thursday, shareholders at the British bank Barclays vented their frustration over rising compensation level during a heated question-and-answer session at the lender’s annual meeting.
Barclays defended the decision to raise the bank’s compensation pool for 2013 despite a loss in the fourth quarter.
David Walker, the Barclays chairman, said the bank faced strong competition to attract and retain employees, particularly in the United States, and that raising pay was necessary. He noted that overall pay at the bank had decreased in the previous two years and remained below 2010 levels.
Pay at R.B.S. has been a politically sensitive issue after the bank received 45 billion pounds, or about $75.6 billion, from the British government during the financial crisis. Lloyds Banking Group also received a bailout at the time.
Prime Minister David Cameron and Edward Miliband, the leader of the Labour Party, have repeatedly sparred over capping bonuses at R.B.S.
Banks across Europe have adopted a variety of measures to sidestep the recently implemented bonus rules, including adopting so-called role-based pay and increasing fixed pay.
R.B.S. said Friday that the decision by United Kingdom Financial Investments “creates a commercial and prudential risk which it must try to mitigate within the framework of a 1:1 fixed to variable compensation ratio.â€
The decision is a setback for Ross McEwan, the chief executive of R.B.S., who has been trying to reshape the bank from one with vast international ambitions to a “a smaller, simpler and smarter bank.â€
The bank recently announced an £8.2 billion loss in 2013 and said it could be three to five years before it fully recovers.
Mr. McEwan has said that repaying the government the £45 billion it owes and winning back the trust of the British public is a crucial step for the bank’s turnaround.
