FAQ: Remuneration

Has the government forced the banks to stop paying dividends?

When the government committed taxpayers to a £37bn bail-out of the banking system it came with an assault by ministers on the City's bonus culture and shareholder greed. Prime minister Gordon Brown said shareholders would miss out on dividends as long as the banks needed government cash.

Do the banks agree?

Lloyds TSB's chief executive Eric Daniels reckons he can pay back the government loan next year and bring back dividends immediately after that. Daniels, said: "We have pointed out to the government we are going to make only commercial decisions."

What about bonuses for bank bosses?

Banks seeking help from the government agreed conditions which would "bring an end to rewards for failure", said Brown, who pledged that directors at Royal Bank of Scotland and Lloyds TSB and HBOS would not receive cash bonuses this year and would get any bonus next year in shares. At the same time, the FSA wrote to the chief executives of the 30 largest banks and building societies saying it shared concerns that "inappropriate" remuneration schemes may have contributed to the market crisis.

What has Brown said about bonuses?

The prime minister said: "Going forward, rewards will only be based on performance and long-term value creation, not incentives for irresponsibility or excessive risk-taking."

Have the banks stuck to the deal?

Certainly the top bosses, including John Varley of Barclays and Eric Daniels of Lloyds TSB, have foregone bonuses and pledged to pay themselves in shares next year. But they have ignored the spirit of the government's message and set aside vast sums to reward senior staff. That's what it takes to retain the best staff, argue the banks.

Were banks going to start lending again?

Yes. The chancellor, Alistair Darling, said he wanted a return to 2007 lending levels, though this was later refined to a general increase in the availability of mortgages and at interest rates that reflect recent cuts in base rates.

Were Brown's speeches for nothing?

Unions certainly hope not. While ministers are saying very little over the quick turnaround in the attitudes of the banks, union leaders are pressing for the Treasury and the FSA to stick to their guns and prevent a quick return to business as usual. The chief executives of Britain's five largest banks were paid almost £65m over the last five years. The FSA is targeting remuneration across companies' operations. Among the practices it wants to see outlawed, are packages that do not take risk or capital cost into account, are based solely on financial performance or paid entirely in cash.

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