Plans by part-nationalised Royal Bank of Scotland to pay bonuses double the size of salaries are scuppered by the government.
New European rules mean that the part-nationalised bank requires the approval of shareholders to award variable remuneration up to 200 per cent of fixed pay.
RBS has been told by UK Financial Investments, which manages the Treasury’s 81 per cent stake in the bank, that it will not support the proposed two to one ratio.
The proposal will no longer be put to shareholders in June at the annual general meeting and the bank claims that it now faces a “commercial and prudential risk” as it tries to operate within a one to one fixed pay ratio.
Bonuses were out of control, banks needed bailing out and the economy was shrinking
Treasury spokesman
It said: “The board believes the best commercial solution for RBS is to have the flexibility on variable to fixed pay ratios that is now emerging as the sector norm.
“This would also allow RBS to maintain the maximum amount of compensation that could be subject to performance conditions including clawback for conduct issues that may emerge in future.
“This position was understood during consultation with institutional shareholders.”
A Treasury spokesman said there could be no rise in the bonus cap because the bank has not yet completed its restructuring and remains majority public owned.
However, the Treasury will not oppose a two to one bonus ratio at Lloyds Banking Group, in which it still has a 25 per cent stake, as the bank has largely completed its restructuring.
The spokesman said: “We have made clear there will be no rise in the bonus cap for an RBS still in recovery, but a bonus cap at Lloyds that reflects the progress it has made in getting money back for taxpayers.
“A few years ago, bonuses were out of control, banks needed bailing out and the economy was shrinking. Under this Government’s long-term economic plan bonuses are down, the banks are recovering and the economy is growing.”
RBS Chief Executive Ross McEwan will receive a salary of £1m this year, as well as the potential for three times that amount through the company’s long-term incentive plan.
The bank says it will follow the lead of other banks in paying a fixed allowance to senior staff in addition to salaries in a move seen as side-stepping the EU bonus cap.
Mr McEwan will be entitled to an additional payment of £1million from next year, but chief executive and other board members will no longer be entitled to receive annual bonuses.