By Mark Kleinman, City Editor
The chief executive of Lloyds Banking Group is being lined up for a salary increase that could see his fixed pay almost double as it tackles new remuneration rules imposed by Brussels.
Sky News has learnt that Lloyds, which is 33%-owned by taxpayers, is likely to announce next week that it has decided to follow other big UK banks in awarding "allowances" to its most senior risk-taking staff.
Lloyds' board remuneration committee is understood to have met in the last few days to agree the move.
The decision still requires the formal approval of UK Financial Investments (UKFI), the Treasury agency which manages the taxpayer's stake in Lloyds.
If it gets UKFI's backing, the details will be announced as part of Lloyds' annual report, which is expected to be published on Wednesday.
From one perspective, UKFI's backing would not be surprising since George Osborne, the. Chancellor, has already mounted a legal challenge to the European Union rules.
Under the Brussels scheme, which affects pay deals awarded from this year onwards, banks can hand out bonuses worth up to 100% of an employee's salary without the consent of shareholders.
However, they must seek investors' consent to award up to double that sum in variable pay, which even at that upper limit is much less than many bankers have typically been paid.
The rules have prompted major banks operating in Europe - including Barclays, Goldman Sachs, HSBC and Morgan Stanley - to devise new monthly or quarterly payments which count towards an employee's basic salary for the purposes of calculating their annual bonus entitlements.
Stuart Gulliver, HSBC's chief executive, used the bank's annual results last Monday to attack the rules, pointing to the overwhelming backing its shareholders had given to its existing pay schemes.
Lloyds is understood to have identified approximately 50 executives who will be eligible for the role-based payments, which will be awarded in shares that recipients will have to hold onto for a lengthy period.
Much of the focus is likely to be on the allowance handed to Antonio Horta-Osorio, Lloyds' chief executive, who receives an annual salary of £1.061m.
Insiders said that while the plans had not yet been finalised, Mr Horta-Osorio was likely to receive an allowance of up to another £1m, which would mean that with the approval of Lloyds' shareholders, he could theoretically receive annual bonuses worth up to roughly £4m.
News of the bank's plans comes just a fortnight after Mr Horta-Osorio was awarded a £1.7m bonus for 2013 as an acknowledgement for his work in improving Lloyds' performance during the last year.
The payment will not vest until conditions relating to the share price or a further sale of the taxpayer's stake, and if they are met, he would not receive the bonus until 2019.
Sky News has also learnt that Lloyds' remuneration committee has decided to award Mr Horta-Osorio up to half of a deferred share award made in 2011 when he joined the lender from Santander UK.
That payout is likely to be worth in the region of £2m.
A Lloyds spokesman said that final decisions had still to be taken.
More contentious will be the decisions on pay made by Royal Bank of Scotland (RBS), the other big state-backed lender.
Ross McEwan, its chief executive, said on Thursday that RBS needed to be able to pay "fairly" otherwise he would not be able to retain key staff.
Analysts and investors interpreted the remark as a signal that he also wants to make additional payments, although he insisted that RBS was still consulting with shareholders.
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