Government approves RBS bonus pool

A Royal Bank of Scotland building in London April 7, 2009.

LONDON (Reuters) - The government has approved Royal Bank of Scotland's planned bonus pool, a move the bank's executives hope will help draw a line under the pay debate and boost efforts to turn around its investment bank.

"Consent has been received," a bank spokesman said.

Part-nationalised RBS did not confirm the size of the payout pool. Sources close to the matter have said it is around 1.32 billion pounds, though a deferred proportion paid in shares makes it difficult to calculate a definite total.

The compensation ratio is expected to be less than 30 percent of revenues, at the bottom end of the sector range and well below rivals such as Deutsche Bank and Barclays.

The Treasury -- through UK Financial Investments, which manages its stakes in rescued lenders -- had the right to veto the "quantum and shape" of any RBS 2009 bonus deal, a provision that followed the bank's decision to sign up to a state-backed scheme for bad debts last year.

The unprecedented restrictions, adding to existing clampdowns on pay, prompted warnings from RBS and from its institutional investors that the bank would struggle to retain staff critical to its recovery plan. The government risked, they said, shooting itself in the foot and damaging efforts to return the bank to private hands.

RBS executives later denied the bank's board had threatened to walk out over the issue.

Sources close to the matter said negotiations between the bank and UKFI, however, and the bank's restraint -- including clawbacks and deferral clauses attached to payouts -- had paved the way for a deal and Wednesday's approval had been expected.

Chief Executive Stephen Hester waived his own bonus of up to 1.6 million pounds over the weekend, following a similar move by top bosses at rival bank Barclays, which did not receive direct state aid.

RBS, 84 percent state-owned, will hope the green light draws a line under public anger over pay at the bank, a lightning rod for public anger over bankers' excesses.

Analysts, however, warned there was no magic solution.

"The problem will not disappear because an agreement has been reached -- they are still at a disadvantage vis-a-vis their competitors," analyst Ian Gordon at Exane BNP Paribas said.

"RBS is having to pay over the odds to attract people and it continues to lose people disproportionately. It is an ongoing issue -- but that doesn't prevent GBM (Global Banking and Markets) being the most important part of the business."

Hester has repeatedly warned that the bank is walking a tightrope between its turnaround efforts and political pressure to respond to public outrage over pay.

RBS will post 2009 results and further details Thursday.

It is expected to post one of the largest losses among European banks this year. Analysts polled by Thomson Reuters I/B/E/S/ expected an average net loss of 5.7 billion pounds -- compared to a record-breaking loss of over 24 billion in 2008.

($1=.6473 pounds)

(Reporting by Clara Ferreira-Marques, editing by Will Waterman and Mike Nesbit)