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By Chris Vellacott
LONDON, March 6 (Reuters) - Banks are failing to rein inexcessive payouts for staff below the boardroom level despite apublic backlash against a bonus culture blamed for contributingto the financial crisis, say leading investors.
While higher levels of engagement by shareholders andpolitical pressure since the crisis and the Libor rate-riggingscandal have seen some top executives waive or take smallerbonuses, lower ranks have not been subject to such restraint.
In Britain - a global investment banking hub and home tomost of Europe's top-earning bankers - the annual results seasonhas seen a series of banks disclose payments are on the rise,angering some shareholders.
Investors do not have the power to veto the bonuses of staffbelow boardroom level, but could voice dissatisfaction by votingdown directors' own remuneration packages.
"It certainly looks as though previous commitments wereceived have been abandoned," said one fund manager with stakesin British lenders including Lloyds, Barclays and HSBC. The investor asked not to be named ahead ofmeetings with the management of banks in which the fund holdsshares.
Reuters surveyed institutional investors whose stakes inBritish banks amount to around $12 billion.
Last month Barclays said it raised bonuses at its investmentbanking division by 13 percent in 2013 even as its profits fell,prompting widespread criticism.
Business leaders' group the Institute of Directors said thebank's bonus policy raised the question of whether it was beingrun for its shareholders, or its staff.
"It does seem incredible to me that when profits go downfrom the investment bank, they put bonuses up," said MartinGilbert, chief executive of Aberdeen Asset Management, one ofEurope's biggest fund managers, speaking at a conference.
Aberdeen is about to inherit significant stakes ininstitutions such as Barclays and Royal Bank of Scotland (RBS) when it completes the acquisition of Scottish WidowsInvestment Partnership (SWIP).
Other banks lifting bonuses in 2013 included HSBC andLloyds. Outside Britain, Switzerland's biggest lender UBS said it had increased its bonus pool for 2013 by 28percent.
In the United States, Morgan Stanley, Bank of America and JP Morgan raised average staff pay by 6.6percent, 7.5 percent and 3.8 percent respectively, while GoldmanSachs cut it by 4 percent.
"DEATH SPIRAL"
Barclays CEO Antony Jenkins has said he had to increasebonuses to stop key staff defecting to rivals and was quoted ina British newspaper saying he feared a "death spiral" where thebank struggled to attract good staff and its brand was damaged.
Some investors are not impressed by this argument, however.
"That's the story they always peddle. I think someone oughtto test their poker face on this one," said one Barclaysshareholder who also holds stakes in Lloyds, RBS and HSBC.
"A lot of the executives are doing the right thing in termsof moderating their pay and refusing bonuses and things likethat. It's the level under there that it still looks out ofcontrol," said the shareholder.
However, another Barclays shareholder acknowledged bankswere "between a rock and a hard place" on investment banker paybecause of the risk of losing staff but said the need to pay bigbonuses was detrimental to the bank's business model.
"It's bloody annoying. It's not what we want," theshareholder said.
Loss-making RBS - part nationalised after being bailed outin 2008, and under pressure to restore its standing with itspolitical masters and the public - bucked the trend in Britainwith staff bonuses for 2013 down 15 percent.
Some investors in banks argue critics of bonuses are missingthe point as executive pay is now under much closer scrutiny,particularly since shareholder votes on remuneration becamebinding under new legislation last year.
"There have clearly been changes to the relationship betweenboards and shareholders because we now have the binding vote onthe remuneration report," said Dominic Rossi, global chiefinvestment officer for equities at Fidelity WorldwideInvestment.
INVESTOR VOTE
Shareholder advisory group PIRC on Thursday said it willadvise investors to vote against "excessive remunerationpackages".
A package is deemed too much by PIRC if CEO bonuses amountto 200 percent of base salary, pay rises faster than shareholderreturns or if the head of the firm's pay is more than 20 timesthat of the average worker at the organisation.
It is rare for investors to block remuneration packages,however 2012 saw a number of such revolts, dubbed the"shareholder spring".
Barclays' boss Jenkins waived his bonus for 2012 inrecognition of the bank's implication in the Libor scandal. WhenRoss McEwan was appointed RBS chief executive in 2013, he saidhe would forgo an annual bonus for 2013 and 2014 while he workedon leading the lender towards recovery.
But some investors counter that this cultural change hasapplied to the boards of listed companies who have to disclosedetails of their pay in annual reports and submit them toshareholder votes, but not the next level down.
Figures from Europe's banking regulator show that more than3,500 bankers in Europe earned 1 million euros or more in 2012with the financial hub of London, home to many global groups'European headquarters, accounting for the lion's share.
The latest data from the European Banking Authority supportsthe idea that pay restraint is not affecting the middle tier ofbankers. It shows 3,529 bankers in the EU earned at least 1million euros in 2012, up 11 percent from 2011.
Britain accounted for 2,714 of those, up 11 percent on theyear before, partly reflecting London's position as Europe'sfinancial centre and home to big operations for banks from theUnited States, Switzerland and other countries outside the EU.
However, Fidelity's Rossi highlighted since the 2008-09crisis, banks have started deferring bonuses over at least threeyears and paying more in shares than cash. This, banks argue,diffuses the risk-taking culture that contributed to the crisisby making payouts conditional on long-term performance.
"The fact is there has been quite a significant change inthe remuneration culture within banks and also the level ofengagement that is taking place between banks and shareholdershas never been stronger," he said.
