Analysing the FTSE 100 over five years: Total CEO Pay vs. Company Performance 2006-2011 

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The weakness of the new measure, which was touted as a centerpiece of the U.K.’s clampdown on bank pay, illustrates how the government here continues to play to public anger over banker pay while also quietly acquiescing to banks’ insistence that they need to pay employees competitively. Some bankers are privately gloating about the irrelevance of the £2,000 ceiling, given the much larger paydays that will follow soon after.
The £2,000 cash bonus limit, announced by U.K. Treasury chief George Osborne, stems from a philosophy that deferring bankers’ pay over the long term, or doling it out in shares or other instruments, will discourage bankers from taking excessive risks.
But experts say deferrals for just three months are essentially pointless. They don’t last nearly long enough to align employees’ interests with those of other stakeholders.
“Three months is not long term,” said Simon Patterson, a partner with London-based pay consultancy Patterson Associates LLP. “It doesn’t achieve anyone’s objectives, other than the participants jumping through hoops.”
The U.K. Treasury didn’t return calls and emails seeking comment.
A spokeswoman for U.K. Financial Investment Ltd., the agency of the government that manages its stakes in Lloyds and RBS, said at the time the pay deal was announced that “we believe the approach to remuneration provides an appropriate balance between restraint and the need to retain key people within the businesses, which are essential for taxpayer value.”
A spokesman for RBS said, “Our deferral arrangements are tougher than the [U.K.'s] revised Remuneration Code and strike a balance between the need to demonstrate restraint and the need to realize sustainable value for shareholders, including the taxpayer.” He added that the bank has previously disclosed that initial payouts would begin in June.
The £2,000 cap was announced alongside an agreement dubbed “Project Merlin,” in which banks agreed to boost lending and transparency and curb bonuses in exchange for an end to criticism of bankers by parliamentary ministers, which has remained loud in the two years since the financial crisis.
Employees at the two banks who receive a bonus for 2010 will indeed be paid just £2,000 in upfront cash in March, as Mr. Obsorne said.
However, at both RBS and Lloyds, employees who earned bonuses totaling £25,000 or less will be paid the remainder of their bonus in June, according to people familiar with the banks’ payout plans. These will paid in shares at Lloyds and in subordinated debt and shares at RBS. Employees will be able to immediately sell those instruments, meaning they are essentially as good as cash.
At Lloyds, the loophole applies only to employees receiving bonuses of £25,000 or less, the vast majority of the retail bank’s employees.
At RBS, which argued to the government that it needs to be able to pay more in order to remain competitive with their investment-banking peers, employees receiving smaller bonuses will also be able to cash in most or all of it by June. Those receiving larger bonuses will be restricted from cashing in a percentage of their bonus, depending on how big it is.
Some may be able to receive as much as several hundred thousand pounds in June if they cash in shares or debt immediately. Therefore, even those receiving bonuses of around £1 million, such as some employees in RBS’s investment bank, could end up with significant amounts of cash from their bonuses by June.
The rules are tougher for the banks’ 250 most senior executives, for whom new U.K. and European Union pay restrictions are in play. They can take only 20% of their bonus this year, and it won’t be available to them in cash until the end of the year.
Copyright 2011 Dow Jones & Company, Inc. All Rights Reserved

Patterson Associates have advised me for some years as a Remuneration Committee Chairman. I appreciate their knowledge of markets, their judgement and responsiveness. They are also very experienced. I am not sure that there are many remuneration issues Simon Patterson hasn’t had to deal with at some stage in his long career in this field

I found Patterson Associates to be a group of professional, innovative problem solvers. The work products were of high value and always on-time.

I have known Simon for many years and have always admired the intellectual rigour of his approach to executive pay combined with his awareness of the practical issues involved in one of the hottest topics in the corporate governance world. Most important has been his focus on the alignment of investor and executive interests with the aim of enhancing shareholder value.