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Lloyds CEO Horta-Osorio's pay riles shareholders ahead of bank's AGM

Lloyds Banking Group PLC boss Antonio Horta-Osorio faces a showdown with shareholders at the bank's annual general meeting after investor advisory groups raised concerns over the remuneration report.

The Investment Association, which represents 250 fund managers managing £7.7 trillion of assets, has given the bank's remuneration report an amber top, its second highest indication of concern, ahead of the bank's annual general meeting on May 16.

The IA, which declined to comment, is concerned over the scale of CEO Horta-Osorio's cash allowance in lieu of pension contribution. This was £573,000 or 46% of his £1.24 million base salary in 2018 but it has been cut to 33%, or £419,000, for 2019. Nevertheless, this is still far above the 13% to which most Lloyds' staff are entitled. Investors are increasingly critical of such payments that are sometimes viewed as backdoor boosts to pay.

The Financial Reporting Council revamped the U.K. Corporate Governance Code last July and it said executives should have the same pension rates as employees. This has been backed by members of Parliament with Frank Field MP, the independent chair of the work and pensions' select committee, calling on the bank to justify the payments.

SNL Image

The entrance to Lloyds Group's London headquarters.

Source: Associated Press

The bank's COO Juan Colombas and CFO George Culmer each receive cash payments in lieu of pension worth 25% of their salaries.

Lloyds was rocked last year by a shareholder rebellion with 20.78% of investors voting against the remuneration report at its annual general meeting last year, compared with 98% of investors who backed the report in the previous year.

Such practice is not confined to Lloyds as executives at other banks coming under fire from investors. Ross McEwan, chief executive of Royal Bank of Scotland Group PLC, has been criticized for receiving a pension allowance of 35% of salary. However, RBS has lowered its pension allowance for new directors with new chief financial officer Katie Murray receiving a 10% pension allowance.

Lloyds was also at the receiving end of a critical report from Pensions and Investment Research Consultants, Pirc, which is backed by the Local Authority Pension Fund.

Pirc recommended that Lloyds' shareholders vote against the remuneration report. It said that Horta-Osorio's pay over the past five years rose 1.76%. This was not in line with the company's total shareholder return, which fell 4.36% over the same period. The advisory firm also had concerns over the level of variable pay for Horta-Osorio, representing 273% of his salary, while the ratio of Horta-Osorio's pay to that of the average employee is regarded as “excessive” at 110:1.

Lloyds won support for its remuneration report from other investor advisory firms. Institutional Shareholder Services recommended investors approve the remuneration report. However, it said “only qualified support” for the report was recommended after a significant increase in Horta-Osorio's fixed share allowance. This was granted when Horta-Osorio took on the role of CEP of Lloyds' ring-fenced bank, its U.K. focused retail and commercial bank, but ISS said this explanation was not sufficiently compelling.

Another shareholder advisory firm, Glass Lewis, also backed the remuneration report. Between them, ISS and Glass Lewis are subscribed to by about 75% of Lloyds investors. Lloyds declined to comment.