Former and current directors of Lloyds Banking Group could face having their bonuses clawed back, after the bailed-out bank was hit with a record £28m fine for putting staff under intense pressure to sell products customers did not want – or face demotion and pay cuts.
The 33% taxpayer-owned bank now faces a bill of at least £100m to compensate up to 700,000 customers of Lloyds, Halifax and Bank of Scotland who bought £2bn-worth of products such as stocks-and-shares Isas and illness or income insurance cover, between January 2010 and March 2012 in a bonus-induced selling frenzy by staff. The scale of the fine – a record for the Financial Conduct Authority in such cases – and the potential bill for redress could result in bonuses for past and current directors being clawed back, including the chief executive, António Horta-Osório, who was at the helm for 12 months before the bonus schemes were stopped.
Among the revelations are:
• A sales adviser sold financial protection products to himself, his wife and a colleague in an attempt to avoid being demoted.
• A “grand in your hand” scheme for advisers at Halifax and Bank of Scotland made one-off payments of £1,000 for hitting sales targets.
• A “champagne bonus” was awarded to Lloyds TSB staff, worth 35% of their monthly salary, for meeting sales targets.
Exposing the latest failings of an industry already disgraced by the payment protection insurance scandal, Tracey McDermott, the FCA’s director of enforcement and financial crime, said the fine had been increased by 10% because Lloyds failed to heed repeated warnings about sales practices and because it had been fined 10 years ago for poor sales incentives.
“Customers have a right to expect better from our leading financial institutions and we expect firms to put customers first – but firms will never be able to do this if they incentivise their staff to do the opposite,” said McDermott.
The FCA found that in many instances customers did not need the products they were being sold but Lloyds paid bonuses to its staff for selling them, while employees who failed to hit targets faced demotion. Salaries varied by up to £70,000 depending on how much individuals sold.
Union officials at Unite called for all sales bonuses to be abolished. Dominic Hook, Unite national officer, said: “Despite the countless reports and investigations into the conduct of the banks, the industry clearly has not learned the lessons of the financial crisis nor heard the concerns of customers and staff in order to adequately change.”
Horta-Osório, who recently received a £2.3m share bonus because of the rise in the bank’s share price since the government sold off the first tranche of its stake, took the helm of Lloyds in March 2011. He brought in a new management team.
Bonuses handed to former directors – such as Helen Weir, now the finance director of retailer John Lewis, who was head of retail banking for much of the period – could be clawed back. She – along with other directors including the former chief executive, Eric Daniels – could be among those whose outstanding bonuses are under threat, although she is unlikely to have known about the detail of the selling schemes.
A spokesman for Lloyds said the impact on bonuses for directors – past and present – would be considered at next month’s remuneration committee.
“2010 bonus awards for executive directors were made in March 2011 and are deferred over a period of three years. The remuneration committee will re-consider deferred awards if appropriate to do so before being released,” the bank said.
Lloyds said it had already embarked on a review to establish if compensation should be paid to customers. “We are already contacting customers, and will continue to contact potentially affected customers over the coming months. Customers do not need to take any action at this stage to be included in the review and they will be contacted in due course,” it added.
McDermott said the FCA had published a review of incentive schemes last year and that all firms needed to ensure they were not encouraging staff to sell products customers did not want. “The review … makes it quite clear that this is something to which we expect all firms to adhere.”