UPDATE 2-RBS signals will toughen targets on exec bonuses

By Clara Ferreira-Marques

EDINBURGH, April 28 (Reuters) - Royal Bank of Scotland may raise the share price targets at which executives receive their bonuses, making it harder for the scheme to pay out and allaying anger over 'obscene' payouts.

At a muted annual shareholder meeting -- a far cry from last year's stormy gathering when shareholders vented anger over the bank's fall -- over 99 percent voted to back a new long-term incentive plan, after the bank held talks with institutions.

The bank said it was conscious of shareholder views on the 50 pence share price trigger for payouts -- seen by many as too low after a share price rally this year -- and would take those views into account when it finalises the target after a trading update next week.

UK Financial Investments (UKFI), which manages the government's 83 percent holding in the bank, and which will be instrumental in the gradual disposal of that stake, said it backed the new plan and the inclusion of an absolute share price target linking management pay with value for taxpayers.

RBS remains a lightning rod for anger over 'fat cat' salaries, with shareholders continuing to fret over excessive pay.

Shareholder John Horrocks told the board he had yet to see a change in culture, with new rules simply implying that 'instead of loading sackloads for individuals now, we seem to be delaying for three years'.

'I don't share your view that investment banking salaries are obscene,' Chairman Philip Hampton told another of several shareholders quizzing him on pay. 'It is the action of the market... If you don't pay market rates, this company isn't going to perform at market levels -- and we want to perform above market levels.'

But Wednesday's meeting in central Edinburgh was held against the background of shares trading above the 50 pence average level at which the government bought its stake.

'We are under no illusions that we are out of the woods,' he told shareholders. RBS was 'on its knees' a year ago, but has made a good start in its turnaround plan, Hampton said.

He said RBS was making good progress on its disposals programme, including the sale of payment processing arm WorldPay and 318 bank branches, although the sale or flotation of its insurance arm was unlikely before 2012.



GOLDMAN, GREEK CONCERNS

A year ago, RBS shareholders voted overwhelmingly against the bank's remuneration report, the focus of public outrage over the its troubles and former boss Fred Goodwin's pension.

The focus now has shifted to the possible impact of the outcome of the May 6 general election on plans to sell down the state's stake in RBS as the government struggles to shrink a swollen deficit. Taxpayers who bailed out the bank are benefiting from strong investment banking profits and a broader economic recovery.

'If the government were to sell its shares in RBS at no more than what it paid, that is 45 billion pounds that doesn't have to be saved in some other way,' Chief Executive Stephen Hester said after the meeting.

Investors also quizzed the board on whether the bank plans to sue beleaguered investment bank Goldman Sachs over losses linked to a deal currently being probed. RBS executives said any decision before a ruling by U.S. regulators would be premature.

Answering separate worries over turbulent debt markets, RBS board members said the bank had manageable exposure to Greek and Portuguese debt.

RBS is expected to raise the trigger price for the long-term incentive plan (LTIP) to in line with or above the current share price after weighing up the share price volatility, the need to motivate executives, and shareholder concerns.

That trigger is part of an absolute shareholder return measure which accounts for one quarter of the award.

PIRC, a leading UK governance body which advises major institutional investors, said last week shareholders should reject pay proposals from both RBS and rival Lloyds as they lacked disclosure.

The bank is due to publish an update on first-quarter trading on May 7.

(Additional reporting and writing by Steve Slater: Editing by David Cowell and Louise Heavens) Keywords: RBS/ ([e-mail]; [phone]; Reuters Messaging: rm://[e-mail]) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.