TSB Freezes CEO Pay, Pledges Free Employee Shares in IPO

TSB Bank Plc, the consumer-lending unit being sold by Lloyds Banking Group Plc (LLOY), will limit the pay of its chief executive officer and give free shares to staff in its initial public offering this month.

CEO Paul Pester will have his salary frozen at 700,000 pounds ($1.2 million) until 2016 and his bonus limited to 805,000 pounds, London-based TSB said in a statement today. The lender said the policy would mean a “material reduction” in Pester’s maximum potential earnings.

Executive compensation is under scrutiny from the British public and shareholders, with investors at Barclays Plc, Standard Chartered Plc and HSBC Holdings Plc (HSBA) registering protest votes at their annual meetings this year. TSB’s pay policies will reward performance and “high levels of conduct,” Chairman Will Samuel said, as some banks seek to restore confidence following mis-selling and other scandals

“TSB recognizes that executive pay is an emotive topic,” said Sandra Dawson, chairman of TSB’s remuneration committee. “The board and remuneration committee have gone to great lengths to address these concerns.”

TSB, which announced plans for a share sale last week, also said it would give its 8,600 employees 100 pounds of shares each in the IPO.

The lender, which operates 631 branches in the U.K., has already pledged to give individual investors one free share for every 20 they buy to a maximum value of 2,000 pounds. Buyers must hold the stock for a year after the IPO.

Financial Crisis

Lloyds must sell TSB to meet European Union demands after it took state aid during the financial crisis. The lender, 25 percent owned by the British taxpayer, has until the end of 2015 to dispose of TSB. It has said it would sell about 25 percent of the consumer bank in the IPO.

TSB’s share sale is the biggest by one of the challenger banks that are trying to compete with Britain’s four biggest lenders. It comes as demand for IPOs show signs of waning.

OneSavings Bank Plc, another challenger, today sold shares at the bottom of the range used to canvass investor interest in the stock.

“There is a bit of IPO fatigue,” OneSavings Bank CEO Andy Golding said in a telephone interview.

TSB said it would make all employees “TSB Partners” as part of a compensation policy inspired by the John Lewis Partnership Plc, the owner of the U.K.’s largest department-store chain. John Lewis, which also runs Waitrose supermarkets, has been employee-owned since 1929.

TSB employee rewards would be capped at 10 percent of salary or 15 percent for “outstanding performers,” the company said. The maximum bonus for senior executives will be no more than 100 percent of salary. That means its pay policy will comply with a EU cap limiting variable compensation to the same amount of fixed pay, TSB said.

To contact the reporter on this story: Richard Partington in London at rpartington@bloomberg.net

To contact the editors responsible for this story: Edward Evans at eevans3@bloomberg.net Jon Menon, Cindy Roberts

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