Britain should rein in salaries at Royal Bank of Scotland and Lloyds before embarking on any sale of its stakes in them, a private shareholder group said, as anger over bankers' pay mounted ahead of their annual general meetings.

It has become a truism that senior bank pay is grossly excessive and, some would say, immoral, said UK Shareholders Association (UKSA) director Eric Chalker, whose organisation represents retail investors and has around 1,000 members.

Bankers' pay remains a sore topic for many around the world, who are enraged by the fact that a sector blamed for causing the 2008 credit crisis continues to pay its members millions while elsewhere thousands lose their jobs in a weak global economy.

The question of salaries at RBS and Lloyds is particularly sensitive in Britain, since the government owns 82 percent of RBS and 40 percent of Lloyds after rescuing the banks during the crisis with 66 billion pounds ($105 billion) of taxpayer money.

Speculation has mounted in recent weeks that Britain may sell some of its RBS stake to Middle Eastern sovereign wealth funds.

Even though a sale at current levels would represent a loss to the British taxpayer, which effectively acquired its RBS stake for 49.90 pence, the argument it could boost investor interest in the stock.

Chalker said it would be wrong for such sales to take place without first reforming business practices at RBS and Lloyds.


Barclays holds its annual general meeting later this month, while rivals HSBC, RBS and Lloyds hold theirs in May, and Chalker called for the establishment of private shareholders' committees on the boards of banks.

Earlier this month, Britain's most powerful institutional shareholder group said it had concerns about executive pay at Barclays, adding to growing criticism over a 17 million pound award for Chief Executive Bob Diamond.

In January, RBS' Chief Executive Stephen Hester and Chairman Philip Hampton bowed to political pressure by waiving their bonuses, while Lloyds CEO Antonio Horta-Osorio also declined his bonus after taking time off work in 2011 on sick leave.

RBS has said that the ongoing row over its salaries and constant political interference is damaging, and CEO Hester told Reuters last month that the faster the government starts selling its stake, the better for everyone.

However, Chalker said it was vital that the government used its position as RBS and Lloyds' leading investor to reform those banks before selling its stakes back to the private sector.

It has a great opportunity here, which could set an example for others to follow with the potential to produce a sea change in director behaviour. It is an opportunity that should not be wasted.

($1 = 0.6288 British pounds)

(Reporting by Sudip Kar-Gupta; Editing by Helen Massy-Beresford)