By Mark Kleinman, City Editor
Lloyds Banking Group is preparing to tweak the terms of its chief executive's bonus which could make it dependent on the Government offloading its entire stake in the UK's biggest high street lender.
Sky News has learnt that Lloyds directors are in advanced talks with UK Financial Investments (UKFI), which manages the taxpayer's stake in the bank, about the annual incentive award for Antonio Horta-Osorio.
Insiders said the discussions were focused on tying the annual award either to a greater number of consecutive days on which Lloyds' shares trade above the taxpayer's break-even price, or to the disposal of the Government's remaining 24% stake.
The latter scenario appeared to be more likely on Wednesday although a final decision has not yet been taken, they said.
Mr Horta-Osorio's 2013 bonus of £1.7m was designed to vest if Lloyds' share price remained above 73.6p on average on 126 consecutive trading days in the five years following its award, or if the Government sold at least half of its shareholding in the three years to 2017.
While the first of those conditions has been met, vesting will not occur until 2017 and the Lloyds chief will be required to hold the shares until 2019.
Sky News revealed earlier this week that Mr Horta-Osorio, who has presided over a trebling of Lloyds' share price since taking over in 2011, was in line for a bonus award of roughly £1m for 2014.
The bank, which reports its full-year results on Friday, is keen to avoid a row over a separate payout to Mr Horta-Osorio under a long-term share award made in 2012 tied to its performance over three years.
He stands to collect more than £7m from the scheme, although the Treasury is understood to have provided private assurances that it will not publicly criticise the payment.
Mr Horta-Osorio's bonus award for last year would have been higher based on Lloyds' performance but was cut to reflect the bank's £220m fine for its role in the Libor rate-rigging scandal, a source said.
Crucially, Lloyds will announce on Friday that it has gained regulatory permission to pay a dividend to shareholders for the first time since it was bailed out with more than £20bn of taxpayers' money.
A source said the Prudential Regulation Authority had communicated its approval earlier this week, with Lloyds directors due to agree the size of the proposed shareholder payout at a board meeting on Thursday.
If Lloyds pays a dividend of 0.5p-a-share, that would equate to a total outlay of approximately £356m, just under a quarter of which would be handed to UKFI.
George Osborne, the Chancellor, is expected to point to those receipts and the sale of a further 1% of the bank's shares confirmed earlier this week.
"The trading plan I launched in December has raised a further £500m for the taxpayer so far," he said on Monday.
"This is further progress in returning Lloyds Banking Group to private ownership, reducing our national debt and getting taxpayers' money back."
Lloyds is also expected to add roughly £600m to its mounting bill for payment protection insurance compensation, taking its liability so far to more than £11.5bn.
Lloyds declined to comment.
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