Northern Rock defers £1.4bn of 2008 bonuses until 2010

Northern Rock has announced controversial plans to pay bonuses to thousands of staff despite a reported £1.4bn loss last year.

The pay scheme was announced yesterday as part of a strategic review of the company, and will pay 100 senior executivess deferred bonuses for 2008 in the form of loan notes – essentially an ‘I owe you’ note where the company agrees to make payments to the note’s holder at a specified future date.

The awards, which will be subject to qualifying and performance criteria, will be used to help the troubled bank “recruit and retain good people”, it said.

A further 400 junior managers and 4,000 frontline staff will receive a 10% deferred bonus, also in the form of a loan note, to help the bank to hit repayment targets for a portion of the government loan.

There will be no cash bonuses or pay increases for 2009, and all bonuses will not be paid until 2010, the review said.

Gary Hoffman, Northern Rock’s chief executive, said pay for performance was not a bad thing. “I don’t think all banks are the same, and I don’t think that all bankers are the same,” said Hoffman. “I’m pleased that we can reward our frontline staff.”

A Northern Rock spokeswoman told Personnel Today: “We will undertake a review of our approach to future remuneration to ensure that incentives are well aligned to the interests of its owners, customers and employees.”

Last week, the Royal Bank of Scotland bowed to government pressure and slashed bonuses by 90%.

The British Bankers Association warned that curbing bankers’ bonuses would force talented staff to move abroad to secure more lucrative benefits.