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Lloyds, RBS face fresh pressure over pay plans

By Raji Menon

LONDON (Reuters) - Lloyds <LLOY.L> and Royal Bank of Scotland <RBS.L> could face stormy investor meetings in the next two weeks after a leading governance body urged shareholders to oppose the banks' proposed pay plans.

Pirc, which advises institutional investors with assets of over 1.5 trillion pounds ($2.32 trillion), has told shareholders to reject the pay proposals which it said are potentially "excessive" and lack sufficient disclosure.

Both British banks are partly state-owned after bailouts.

Pirc's recommendation comes after the Association of British Insurers (ABI) on Thursday issued an "amber top notice" on Lloyds bonuses, indicating shareholders should think carefully before voting in favor of the company.

Last year, some 90.42 percent of RBS shareholders voted against the bank's remuneration report.

"We haven't forgotten what happened, or why it happened. As such we continue to have a critical view of remuneration at the banks," Alan MacDougall, Pirc's managing director, told Reuters.

"It is vitally important that shareholders don't fall back into pre-crisis attitudes to pay, and we urge investors to scrutinize remuneration issues more closely in their analysis of the financial sector post-crisis."

Lloyds Chief Executive Eric Daniels could receive up to 6.2 million pounds for 2010 in salary and bonuses. In 2009 he opted to waive his bonus and a long-term incentive plan did not pay out, meaning he took home 1.12 million pounds out of a possible 5.4 million.

RBS' proposed long-term incentive plan was considered to have an excessive maximum payout of 400 percent of base pay and there is committee discretion to raise this level in 'exceptional circumstance', Pirc said.

ANGRY INVESTORS

Lloyds said its remuneration approach was developed with input from both shareholders and regulators in 2009 and 2010.

"The remuneration committee has sought to strike a balance between the fact that the group is loss-making and the need to motivate key executives to run the business to maximize returns for shareholders, including the taxpayer," it said.

RBS said its pay scheme was aimed at strengthening the link between company performance, shareholder interest and the long-term incentives provided to senior staff.

"Our hope is that our investors will view these proposals as marking a significant step forward in the structure of pay which RBS has led the way on in the past year," it added.

Institutional investors, who have been criticized for not being more actively engaged in companies they own, are preparing to voice their anger over contentious issues such as pay and strategy by voting down management proposals.

One large investor in FTSE 100 companies said: "We are concerned as we have had our fingers burned by being invested in banks -- it's about ensuring that incentive arrangements are fit for purpose and encouraging long-term behavior."

Pirc this week urged investors in Barclays <BARC.L> to vote down the British bank's pay report at its annual general meeting on April 30, pointing to "potentially excessive" pay awards.

Five company remuneration reports were voted down by investors in 2009. These were Bellway <BWY.L>, Provident Financial <PFG.L>, Punch Taverns <PUB.L>, Royal Dutch Shell <RDSa.L> and RBS.

RBS is due to hold its annual shareholder meeting in Edinburgh on April 28, while Lloyds has its meeting on May 6.

(Editing by Michael Shields)

($1=.6465 Pound)

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