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LONDON (Reuters) - Bonuses in financial services sector have been "out of control" in recent years, Prime Minister David Cameron said on Thursday, unveiling plans to cap cash rewards again at state-backed banks.
Cameron said his coalition government would next week set out detailed proposals on curbing executive pay across all sectors, a sensitive issue in Britain where unemployment is increasing and pay rises for most people are lagging inflation.
With 2011 bonus payouts only weeks away for Europe's banks there is particular scrutiny in Britain on lenders bailed out by UK taxpayers during the financial crisis. A tough year for investment banking income and poor share price performance have added to pressure to rein in bonuses.
Cash bonuses at Royal Bank of Scotland and Lloyds Banking Group would be limited to 2,000 pounds, Cameron said.
The state has an 83 percent stake in RBS and also owns 40 percent of Lloyds after taxpayers bailed them out.
The cash bonus cap was used last year, although some staff were able to convert some of the shares they were given into cash as early as June.
Payouts being lined up for top executives, like RBS Chief Executive Stephen Hester, are also coming under fire, although RBS denied reports it had decided to award him a bonus of between 1.3 million pounds and 1.5 million pounds. Cameron said Hester's bonus had not yet been decided.
Bonus pots for 2011 are likely to be slashed after a year of paltry revenues across investment banks, although bankers' payouts will still be high compared with what many people earn. Even U.S. powerhouse Goldman Sachs cut its pay bill for 2011 by 21 percent from a year earlier, to $12.2 billion (7.8 billion pounds).
The payout pool at RBS is likely to be roughly half of what it was for 2010, coming in at between 400 million and 500 million pounds.
RBS has recently taken the axe to big chunks of its investment bank, cutting 3,500 jobs and saying it will exit some markets. Its troubles are likely to increase taxpayers' irritation over large bonuses.
Cameron, a centre-right Conservative, has been a staunch defender of Britain's financial services industry, which still contributes more than 10 percent of GDP.
He refused to sign a European Union treaty last month because he feared it could damage the industry, a mainstay of the London economy.
However, the Conservative-Liberal Democrat coalition government has also been aware of public concern over what Britons regard as excessive rewards for bankers, who helped cause a financial crisis that is driving down living standards for the majority.
"There should be a proper, functioning market for talent at the top of business. And that will inevitably mean some people will earn great rewards," Cameron said in a speech.
"But that is a world away from what we've seen in recent years where the bonus culture, particularly in the City (of London), has got out of control.
Cameron wants to curb executive pay across companies by giving shareholders a power of veto on remuneration packages.
The plan, to be detailed next week, has drawn mixed responses from investors. One poll by Reuters showed a majority of respondents panning the proposals, saying they would not work or could backfire, straining relationships between investors and company boards.
Others have welcomed the move.
"A step-change is needed to address the minority of excesses which are now damaging the reputation of the majority of well-managed companies," said Dominic Rossi, Chief Investment Officer for equities at Fidelity Worldwide Investment, adding that "the status quo is no longer an option."
Reporting by Matt Falloon; Additional reporting by Sarah White; Writing by Keith Weir; Editing by Erica Billingham