LONDON—Lloyds Banking Group PLC will reduce some of the bonuses awarded to top executives in 2010 following an insurance misselling scandal that resulted in the U.K bank handing hefty compensation to consumers, a person familiar with the matter said Monday.
Last year, Lloyds set aside £3.2 billion ($5.06 billion) to compensate consumers who were wrongly encouraged to buy payment protection insurance. PPI was often sold alongside loans to insure that the borrowers could continue repayments if they lost their jobs or fell ill. U.K consumer groups have alleged that this was missold to many consumers who didn’t qualify or weren’t even aware they had purchased the insurance.
Following pressure from shareholders and the U.K. government, which owns a 41% stake in the bank, Lloyds will look to reduce some of its top executives’ 2010 bonuses, according a person familiar with the matter. These bonuses are set to vest in 2013.
A spokeswoman for Lloyds declined to comment on the decision or the amounts by which the company’s chairman and other top executives would see their bonuses reduced.
The decision is the first time that a major U.K. bank has exercised a “claw back” option on bonuses. The ability to reclaim bonuses was introduced by the U.K. financial regulator, the Financial Services Authority, in 2009 in an attempt to better link pay to performance.
Following the PPI scandal, U.K. banks have set aside an estimated £6 billion to cover for eventual claims. Payments continue to weigh on the banks’ balance sheets and stoke shareholder ire. Accordingly, the decision by Lloyds could spur competitors such as Royal Bank of Scotland Group PLC to follow suit, analysts say.
RBS has already set aside £850 million to cover PPI claims, a spokeswoman for the bank said. HSBC Holding PLC has provisioned $440 million, and Barclays PLC said it is earmarking £1 billion for PPI customers.
Lloyds is expected to give further details about the bonus reduction when it reports full-year earnings Friday. One person affected could be the bank’s former chief executive, Eric Daniels, who stepped down last February. He was awarded a £1.45 million bonus for 2010. Mr. Daniels’s successor, Antonio Horta-Osório, gave up his 2011 bonus after taking several months’ sick leave.