Lloyds Banking Group has cancelled all staff bonuses for 2020 because of a sharp fall in profits caused by the coronavirus pandemic.
In a memo sent to staff on Thursday and seen by the Financial Times, Lloyds’ people and property director Matt Sinnott said the bank would not meet the minimum profit threshold to pay any “group performance share” awards.
The slash to the bonus pool — which was worth £310m last year and £465m in 2018 — highlights the particular challenges facing lenders that do not have investment banking operations to offset pressure in the retail banking market.
Lloyds’ rival Barclays, for example, is preparing to boost its payouts after its investment banking unit benefited from market volatility.
“Despite the good news about the vaccine rollout, like most of our peers our year-to-date business performance continues to be challenging,” Mr Sinnott told staff. “While we have returned to profit, we are not where we expected to be and are short of the commitments we made to ourselves and our shareholders.”
The memo added that Lloyds would consider offering staff “recognition shares” in the company next year to help offset the blow of the cancelled bonuses.
Lloyds’ bonus pool is normally set at about 5 per cent of underlying profit. However, the bank said in its last annual report that it would not pay any bonus if its underlying profit was more than 20 per cent below its initial target.
The bank returned to profit in the third quarter, but its pre-tax profit for the first nine months of the year was still down 85 per cent year on year after loan loss provisions pushed it to a loss in the first half.
Low interest rates are expected to weigh on retail banks’ profitability even after the worst of the pandemic has passed, and Lloyds has announced more than 1,900 job cuts since September to help cut costs and deal with the pressure.
One senior executive said: “[Cutting bonuses] would not be a welcomed decision but you must understand how we got here. For once, bankers have a chance of getting the right reputation after everything banks have done to keep things moving for customers and companies through this pandemic. Handing out cash to people when others are losing jobs we have to admit is not a great picture.”
Lloyds’ outgoing chief executive António Horta-Osório and some top bankers at rival institutions had already pledged to waive their bonuses for 2020 after regulators banned big banks from paying dividends and urged them to limit pay at the start of the pandemic.
Lloyds said: “This decision on bonuses in no way reflects the hard work and commitment our people have made throughout this extraordinary year to keep our businesses operating strongly and to provide support and help to our consumer and business customers.”
The bank added that it would give above-inflation annual pay rises to a majority of staff, with a focus on those on lower salaries.
Get alerts on Lloyds Banking Group PLC when a new story is published