Co-op Bank could pay boss £5m package as losses halve

The chief executive of the troubled Co-operative Bank is being handed a potential £5m pay deal, sparking a row as he prepares to axe more jobs and close another swath of branches.

Niall Booker, hired in the midst of the 2013 crisis, has been handed the higher pay deal, a rise of up to £1.9m to sign him up until the end of 2016 to help restore the loss-making bank’s fortunes.

One expert on mutual businesses said it was not ethical to pay management “like Premier League footballers”.

Even though losses were more than halved in 2014, Booker said the lender would be lossmaking for at least another two years and that another 57 branch closures would be required on top of 72 last year when 993 jobs were lost. The Co-op will be left with a network of 165 branches and another 61 roles will be lost.

Booker, who was paid £3.1m last year, said:“We are in the early stages of the turnaround and there is still much to do to transform the organisation into a sustainable business”.

His new pay deal, to keep him untilat least until 31 December 2016, could amount to £4.97m this year and £4.5m in 2016, and sparked controversy.

He was part of the turnaround team hired by the Co-op Group chief executive Euan Sutherland – who then walked out after details of his £6.6m two-year pay deal were leaked.

The Co-op Group owned the bank until 2013 when it was rescued by bondholders, led by US hedge funds, leaving the UK’s largest mutual with a minority stake of 20%.

Peter Hunt, a managing partner at Mutuo, an advisory consultancy to mutually owned businesses, said: “Co-op members will be shocked and angered by this. Having already paid the price of the bank’s near-collapse, they are helpless bystanders as executive pay spirals away from reality. Ordinary staff have lost their jobs whilst top management are being paid as Premier League footballers. It’s not ethical and it’s certainly not cooperative.”

Unions were also critical. The TUC general secretary, Frances O’Grady, said: “Excessive executive pay is an ongoing problem across the banking sector, where remuneration expectations need bringing back down to earth. The leadership culture in banking has to change to one of stewardship, rather than one of cashing in.”

Deborah Hargreaves, the director of the High Pay Centre, said the deal was “way over the top”.

“The Co-op is a bank that trades on its ethical values, yet it is paying a package that compares favourably with the high street banks. Maybe it doesn’t realise that its customers would also expect ethics to apply to pay,” she said.

Dennis Holt, the bank’s chairman, said Booker’s pay last year was set “against very stretching targets”.

The former senior Lloyds banker said a bigger proportion of Booker’s package was now dependent on meeting performance targets. His basic salary rises to £1.3m from £1.2m and he will be entitled to a bonus of up to £1.25m this year.

The Manchester-based lender made a loss before tax of £264.2m in 2014, compared with a £632.8m loss the year before. The 2013 figure was revised from a £1.3bn loss because of a £688.3m gain to the value of debt. Charges for misconduct and legal issues, including the mis-selling of payment protection insurance, fell to £101.2m last year, from £411.5m in 2013.

It paid out £8.3m in pay and bonuses to senior management last year, down from £9.5m in 2013.

Asset sales, including a £7bn portfolio of buy-to-let mortgages it acquired as part of its ill-fated merger with the Britannia Building Society, will now be sped up. The mortgage book will be sold in batches to improve the lender’s capital position. It was the only UK bank of eight high street lenders to fail a “stress test” set by Britain’s financial watchdog last year.

The bank said the performance of its core business stabilised in the second half of last year. The number of current accounts fell by 66,000, or 4%, over the year to 1.4m, but all of them were lost in the first half.

Booker pointed to signs of a turnaround. The bank gained 1,000 primary current account customers - those who pay in their salary - between the first and the second half of 2014, taking the total to 651,000. The new mobile app launched a year ago now has more than 275,000 active users.

He is aiming to turn the bank around after it was ordered to fill a capital shortfall and its former chairman, Paul Flowers, was fined for drug possession last year.

The Co-op Group has been forced to delay its results by a week to incorporate the bank figures.