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RBS Pay Report Receives 90% DissentSubmitted by: Ted Allen, Publications, and Karoline Herms, U.K. Research

In a symbolic protest, the British government joined many other investors in voting against the Royal Bank of Scotland?s past remuneration practices on April 3.

The company?s remuneration report received 90.4 percent opposition from the votes cast?the most ever during an advisory vote on executive compensation. Most of the opposition came from the government, which obtained a 57.9 percent voting stake after rescuing the failed banking firm in October. The company recently posted the largest quarterly loss in British history, and the government now has a 70 percent interest after investors approved a rights offer/preference share redemption on April 3.

Before the RBS shareholder meeting in Edinburgh, most of the news coverage and investor outrage focused on the pension package received by the former CEO, Sir Fred Goodwin. He is to get an annual pension of 700,000 pounds ($1.02 million); Goodwin received an initial payment of 2.8 million pounds and the company paid his taxes. RBS has acknowledged that the payments were not ?standard practice? but told the Treasury that they were ?considered appropriate arrangements for [the company] to make in discharge of his contractual obligations.?

The government?s vote against the remuneration report can be seen as a public relations move, since the company has already worked with Treasury to bring its pay policies closer to best practices. For instance, RBS agreed to pay no 2008 bonuses for executive directors; provide no increases in basic salaries in 2009; defer 2009 annual incentives for three years (with a ?claw back? provision); make no payments under a profit-sharing plan; and reduce long-term incentive awards below 2008 levels. In addition, 12 directors, including the remuneration committee chair, have stepped down since October.

U.K. Financial Investments (UKFI), which manages the government?s stake, said it voted against the retrospective pay report because it objected to the board?s decision to allow Goodwin and Johnny Cameron, the former head of the investment banking unit, to retire early and thus take undiscounted pensions. In a press release, UKFI chief executive John Kingman said the government ?fully supports the approach the present RBS board is taking to remuneration matters, including in relation to the remuneration arrangements for the present chairman and chief executive.?

Full post as published by Institutional Shareholder Services -- Corporate Governance Blog on April 09, 2009 (boomark / email).