In a striking development within the banking sector, Lloyds Banking Group's CEO, Charlie Nunn, is potentially set to receive an astonishing annual compensation package exceeding £13 million. This news comes in the wake of the UK's contentious move to abolish the cap on banker bonuses, making Nunn the latest executive poised to benefit from this policy shift.
The bank's remuneration committee is currently working on a new three-year executive pay framework that will strategically leverage these relaxed pay regulations. This marks a significant change, as it allows for larger potential payouts, a trend already observed among competing financial institutions.
For instance, Barclays' CEO, CS Venkatakrishnan, experienced a remarkable 45% increase in his maximum possible earnings last year, positioning him for a total pay of up to £14.3 million contingent upon achieving key business objectives. Similarly, HSBC's Georges Elhedery was offered a staggering 43% boost, bringing his maximum potential earnings to approximately £15 million. Meanwhile, NatWest's chief, Paul Thwaite, is now eligible for a maximum of £7.7 million after shareholders approved a 43% hike in his pay package last year.
Should Lloyds opt for a similar strategy and propose a 45% increase for Nunn, he could be looking at a potential compensation package reaching £13.2 million, up from the current maximum of £9.1 million. This proposed figure will be subject to shareholder approval at the upcoming annual general meeting scheduled for this spring.
In line with industry trends, Lloyds hinted last year that Nunn’s remuneration structure might involve a "significantly reduced" fixed salary, allowing for a greater performance-related variable reward. This adjustment follows the government's decision to lift the banker bonus cap.
Originally introduced in 2014, this cap limited bonuses to twice an individual banker’s salary, aiming to mitigate the risky behaviors that contributed to the catastrophic financial crisis of 2008. The intention was to reduce the incentive for excessive risk-taking by decreasing the portion of personal income tied to performance metrics, thereby stabilizing the financial landscape and curtailing a prolonged period of economic austerity.
However, critics argue that banks merely compensated for lost earning potential by inflating salaries, ultimately diminishing their ability to control compensation. This shift has led to fewer mechanisms for adjusting bonuses based on annual financial performance.
In 2022, former Tory chancellor Kwasi Kwarteng leveraged post-Brexit regulations to advocate for the elimination of the banker bonus cap. Responding to calls for renewed competitiveness within the City, UK regulators repealed the cap the following year, aligning with new post-Brexit frameworks.
Proponents, including influential lobby groups such as the UK capital markets industry taskforce, assert that higher compensation is essential for attracting top talent and US firms to the UK market. They often cite the significantly larger remuneration packages available in the United States, where companies like JP Morgan awarded CEO Jamie Dimon $39 million (£29 million) last year alone.
Shareholders have generally supported these changes, approving substantial salary increases that would have been unthinkable during the 2010s, a decade marked by shareholder backlash against excessive executive pay in the aftermath of the 2008 crisis.
Nevertheless, major asset managers in the UK issued warnings in November against arbitrarily matching competitors' pay raises, suggesting that Lloyds shareholders might consider this advice before endorsing any new compensation proposals.
A spokesperson for Lloyds Banking Group stated that the forthcoming pay policy will be presented to shareholders later this year, asserting: "As detailed in our annual report last year, the proposals will reflect market trends and regulatory shifts, promoting a connection between performance and rewards. Overall, the new policy aims to comply with updated regulations while providing competitive compensation that aligns with delivering long-term value for both customers and shareholders."
As we look ahead, attention will be focused on the upcoming annual reports from NatWest, HSBC, and Barclays, expected in the final weeks of February, to gauge how the removal of the bonus cap has influenced the salary structures of their top executives following last year's policy alterations.
Interestingly, the easing of bonus restrictions has already started benefiting lower-tier employees, with leading bankers at Barclays and HSBC experiencing their most significant payouts in a decade. For instance, payouts for their highest-earning staff soared by over 50%, reaching nearly €20 million (£16.6 million) in 2024—the first year after the cap’s repeal. Notably, one HSBC banker reportedly earned between €19 million and €20 million in 2024, a stark contrast to the £5.4 million received by the bank’s CEO. At Barclays, a single banker was compensated between €17 million and €18 million, surpassing the £10.5 million awarded to Venkatakrishnan for the same year.
