Financial News

  • 10 February 2014, 11:18

Lloyds Chief In Line For 5.8m Share Payout

The chief executive of Lloyds Banking Group is in line for a windfall potentially worth millions of pounds next month, following the recent surge in the taxpayer-backed lender's share price.

Sky News understands that Lloyds' remuneration committee will decide within weeks what proportion of a long-term share award granted to Antonio Horta-Osorio in 2011 should pay out.

The Portuguese executive was lured from Santander UK towards the end of 2010 with the blessing of George Osborne, the Chancellor, as the Treasury sought to accelerate the clean-up of Lloyds.

As part of his recruitment package, Lloyds agreed to award Mr Horta-Osorio 7,154,187 shares as a one-off grant equivalent to 420% of his basic salary.

At that time, Lloyds shares were trading at just over 62p, well below the level paid by taxpayers to rescue the bank during the 2008 financial crisis.

The long-term incentive plan (LTIP) award was designed to partially compensate Mr Horta-Osorio for forfeiting millions of pounds-worth of share options when he resigned from Santander UK.

At Friday's closing share price, the 7.1m shares would be worth about 5.8m if the award paid out in full next month.

Insiders said it was highly unlikely that the remuneration committee would decide to award the full payment, and suggested that as little as 30% of it could be paid to him.

That would mean Mr Horta-Osorio receiving roughly 1.6m-worth of shares, which he would be entitled to sell immediately.

Lloyds has declined to publicly disclose the precise criteria that will determine the number of shares that Mr Horta-Osorio will receive under the 2011 LTIP award.

However, under his stewardship, the bank has repaid tens of billions of pounds of emergency funding from the Bank of England and sold significant quantities of non-core assets in an attempt to rebuild Lloyds for the longer term.

One source said on Friday that factors such as Lloyds' capital position and economic profit during the last three years would contribute to the remuneration committee's decision about the vesting of the LTIP.

"By putting the needs of the bank first, he has done the heavy lifting in a way that is likely to mean he receives a smaller payout than would otherwise have been the case," they said.

Unlike subsequent LTIP awards handed to Mr Horta-Osorio, the 2011 grant was subject only to a three-year performance period with no further deferral requirement.

Since then, Lloyds has insisted that its top management should hold onto share awards for an additional two years in order to better demonstrate a commitment to the long-term performance of the company.

The share award that will pay out next month will come in addition to an annual bonus for 2013 that Lloyds may choose to announce as soon as the bank's annual results next Thursday.

Sky News revealed this week that Lloyds and UK Financial Investments, which manages taxpayers' remaining 33% stake, were close to agreeing a set of conditions under which that bonus would vest.

Negotiations are still ongoing, but the board of Lloyds is expected to hand Mr Horta-Osorio between 1.5m and 2m in shares that would be deferred until 2019, after he steered it back into statutory profit for the first time in three years.

Insiders say that a resumption of dividend payments, a further sale of the Government's stake in Lloyds and a new share price hurdle linked to profitability for the taxpayer are among the options being discussed as vesting conditions for Mr Horta-Osorio's bonus.

Lloyds' shares have risen nearly 60% during the last 12 months, with investors broadly shrugging off the bank's vast exposure to the payment protection insurance mis-selling scandal, which has now cost it nearly 10bn.

Mr Horta-Osorio this week laid out a series of lending and employment targets under the slogan 'Helping Britain Prosper'.

Lloyds declined to comment.