TSB's take on 'modest' CEO pay: £1.7m

Boss Paul Pester claims soon-to-be floated bank is like John Lewis

He promised he and his fellow top brass at TSB Bank would be paid more modestly than his peers in other banks. Now it has emerged that chief executive Paul Pester will be able to earn a potential £1.7m a year, but only if his performance is deemed "outstanding".

While he admitted that was "a lot of money", Mr Pester said the board had decided it was fitting for the job of running a bank with 4.5 million customers.

On the face of it, he will be earning less than other bank chief executives like Antonio Horta-Osorio, the chief executive of Lloyds, who will receive £1.7m in shares this year, on top of his salary of £1m. But they are running far bigger operations, and it waits to be seen whether potential TSB customers consider Mr Pester's pay low enough to comply with the bank's stated intention of not being like other big banks.

TSB took pains to point out that he could earn more from his current employer, Lloyds, which is spinning off the TSB business at the behest of European competition watchdogs. Unlike other CEOs, he has also agreed to have his salary frozen at £700,000 until 2016.

Including other benefits like pension payments, his pay will be £877,500, which can be topped up with a bonus of up to £805,000.

For employees, the new company will pay them £100 in shares as part of its flotation, expected late this month or early in July.

But, they will need to hold onto their shares in order to get their annual performance related bonuses, in an innovative pay plan the bank claimed was based on the partnership model of John Lewis.

Employees will even be known as "TSB partners", in an echo of the famous John Lewis Partnership. However, unlike John Lewis, the staff will only own a small proportion of the company, and any dividends it eventually pays will go mainly to big City investors.

Bonuses for staff will be capped at up to 10 per cent of their salaries, with the best performers qualifying for 15 per cent, TSB said – meaning the bank would comply with European rules stating bonuses should be capped at one times salary.

Most other UK banks have sought exemption from the rule, but mainly only to retain investment banking staff, which TSB does not have.

The staff bonus will be weighed up by a mixture of customer service targets and will only be paid if the bank is profitable.

Meanwhile, executives will be put on a scheme called a "sustainable perfomance award", also based on targets including customer service. This could add up to 100 per cent of salary, but will be made in shares and cash over a period of five years.