Lloyds Banking Group chief executive Antonio Horta-Osorio has lost out on £350,000 worth of bonuses after it was hit with a record £117 million fine by the City regulator over the way it handled mis-selling complaints.
The Financial Conduct Authority found the state-backed group had wrongly denied compensation to customers over payment protection insurance (PPI) – the wider scandal that has already cost Lloyds £12 billion.
Chief executive Antonio Horta-Osorio will miss out on £350,000 in deferred bonuses as a result of the failings which happened on his watch in the period between March 2012 and May 2013.
He is among a number of top executives to be docked payouts totalling £2.65 million for the period.
They are likely to include Alison Brittain, who is departing as head of Lloyds's retail division to become boss of Premier Inn and Costa coffee owner Whitbread.
Today's fine will also see the bonus pool for state-backed Lloyds, to be announced next spring, being reduced by £30 million. For 2014 the total was £360 million.
The £350,000 being withheld from Mr Horta-Osorio represents 12% of his payout relating to the period covered by the FCA fine. Pay withheld from members of the wider executive committee averages at around 25%.
The fine is the largest ever retail banking penalty imposed by the authority – other larger charges have related to trading scandals such as Libor benchmark rate-rigging and foreign exchange rate manipulation.
It relates to a period from March 2012 to May 2013 when the group assessed customer complaints relating to more than 2.3 million PPI policies and rejected 37% of those – many of them wrongly. Lloyds apologised to customers affected.
Lloyds has been the worst-hit by the PPI mis-selling scandal, having set aside a total of £12 billion out of a running total for the whole industry of £26 billion.
But now regulators have found the way some lenders handled the fall-out of the scandal was not good enough. In April the FCA fined Clydesdale Bank £20.7 million for failings that meant thousands of PPI complaints might have been rejected unfairly.
Georgina Philippou, acting director of enforcement and market oversight at the FCA said: "If trust in financial services is going to be restored following the widespread mis-selling of PPI, then customers need to be confident that their complaints will be treated fairly.
"The size of the fine today reflects the fact that so many complaints were mishandled by Lloyds.
"Customers who had already been treated unfairly once by being mis-sold PPI were treated unfairly a second time and denied the redress they were owed. Lloyds' conduct was unacceptable."
Mr Horta-Osorio said: "We made mistakes in our handling of some PPI complaints. I am very sorry for this. We have been working hard with the FCA to ensure all customers receive appropriate redress.
"That process is now substantially complete. We remain fully committed to improving our operational procedures and ensuring we do the right thing for our customers."
The FCA found that in March 2012, Lloyds issued guidance to complaint handlers that its overriding principle when assessing complaints should be that PPI sales processes "were compliant and robust unless told otherwise".
This resulted in some of them dismissing customers' personal accounts of what had happened to them during the PPI sale.
In addition, Lloyds did not notify complaint handlers of known failings that had been identified in its PPI sales process.
Some customers were told that their complaint had been "fully investigated" when this was not the case.
Today's fine comes days after the Government fired the starting gun on a £4 billion "Tell Sid"-style share sale to be launched within the next 12 months as it seeks to sell off more of the taxpayer stake in Lloyds.
Lloyds was rescued by the taxpayer at the height of the financial crisis, but the Treasury's holding has since been shrunk from 43% to just under 19% as parcels of it have been disposed of on the stock market.
The group has faced a series of fines in recent years. Last July it was hit with penalties totalling £218 million by the FCA and US regulators over benchmark rate-rigging practices.
These included an attempt to rip off the Bank of England over its financial life support scheme, behaviour described as "highly reprehensible" by Bank governor Mark Carney.
In December 2013, Lloyds was fined £28 million over incentive schemes that rewarded staff with "champagne bonuses" and put advisers under pressure to hit sales targets or face demotion.