Lennie Fuller

By e-mail: [email address]

Dear Lennie Fuller,

I am responding on behalf of UK Financial Investments to your Freedom of Information Request. You requested information on what steps UKFI are taking to control the process of amounts paid to employees of the Royal Bank of Scotland for the financial year 2009.

Following a search of our records, I can confirm that we do hold information relating to your request.

UKFI is approaching its relations with Investee companies as a commercial shareholder. Our overarching objective as set out in our framework document (www.ukfi.gov.uk) is protecting and creating value for the taxpayer as shareholder. We have a direct relationship with the management of the banks in which we have investments with whom we engage as a commercial shareholder. However our framework document sets a requirement that UKFI will not intervene in the day-to-day management decisions of investee banks, including on individual remuneration decisions. The banks retain their own independent boards, which manage the banks and fulfil this role.

Our recent involvement with these banks' management over remuneration has been conducted in the context of agreement between Government and the banks to participate in the Asset Protection Scheme, and the recent finalisation of the Asset Protection Scheme terms, as well as significant support through the Government's recapitalisation scheme.

We have worked with both RBS and Lloyds which have implemented what are perhaps the most far-reaching reforms to remuneration structures of any large banks in the world. Both banks have signed up to early implementation of the G20 principles and the FSA code on remuneration.

In respect of bonus payments for 2009, staff at both banks eligible for annual bonuses have been split into three groups: those who earn less than £39,000, executive board members, and staff who do not fall into either of these categories. Executive board members will defer the entirety of any bonus payments due for 2009 until 2012, to ensure that their remuneration is better aligned with the long-term performance of their banks. Those who earn more than £39,000 but who are not executive board members will not be eligible to receive any discretionary cash bonuses; rather, they will be able to receive part of their bonus in 2010 but this will be paid in shares or debt, with the remainder (50% or more) deferred and subject to clawback. Lower paid staff will be eligible to receive discretionary cash bonuses of up to £2,000 with anything over and above that deferred and paid in shares.

However, we have also taken into the account the need for the banks to remain competitive with the rest of the banking sector to ensure that the taxpayer's investment is not put at risk through the banks not being able to attract and retain high calibre staff.

No decisions have yet been taken on the amounts to be paid to employees in the bank, and any decisions will depend on the performance of the bank, its units and individuals over a year. Information on quantum would be subject to exemptions under the Freedom of Information Act, specifically sections 41 and 43 - information provided in confidence and commercially sensitive information. However, information on remuneration for board members at RBS can be found in the RBS Annual Report, in line with Company's Act reporting requirements, at:

(http://www.rbs.com/microsites/gra2008/index.html).

Yours sincerely,

Mandeep Dhillon

Correspondence Officer

UK Financial Investments

Your Rights to Complain under the FOI Act

If you are unhappy with the service you have received in relation to your request and wish to make a complaint or request an review of our decision, you should write within two months of the date of this letter to UK Financial Investments, G/08, 1 Horse Guard Road, London SW1A 2HQ. email - [email address]

If you are not content with the outcome your complaint, you may apply directly to the Information Commissioner for a decision. Generally, the ICO cannot make a decision unless you have exhausted the complaints procedure provided by the Treasury. The Information Commissioner can be contacted at: The Information Commissioner's Office, Wycliffe House, Water Lane, Wilmslow, Cheshire SK9 5AF.

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