RBS could pay Hester £8m under long-term pay incentive plan
Stephen Hester, the chief executive of the Royal Bank of Scotland (RBS) could receive a bonus of up to £8 million under the terms of a long-term incentive plan that could boost his total remuneration to 375 per cent of his annual £1.2 million salary in addition to other share plans already agreed as part of his total package.
RBS plans to buy 4.5 million shares for Mr Hester in the next few weeks as part of the long-term pay agreement. In addition the bank will operate a separate scheme that will purchase £3.3 million shares on behalf of Mr Hester.
The original policy was set out in 2010 and the share purchases are part of that scheme to reward Mr Hester through a long-term incentive scheme should he meet agreed performance targets.
The Prime Minister, David Cameron and the coalition government have faced intense criticism for not halting the bonus payments to Mr Hester. Bonuses paid to top executives at RBS and Lloyds are particularly contentious because both banks are part-owned by the UK taxpayer and had to be bailed out using a total of £66 billion of public money.
The government is by far the biggest shareholder in RBS and in theory could use that position to vote against pay levels and bonuses to Mr Hester and other high-salaried executives at RBS.
However, it is thought that if the government had tried to do this the bank’s board and management team, put in place by the previous Labour government would have threatened to resign.
Cabinet Minister, Iain Duncan Smith said on the BBC today that the RBS board takes the decisions on bonuses to its staff under the agreement previously drawn up in 2009 and that the government could not interfere and tell the board what it should do.
He said that the government’s target was to ensure RBS recovered so that it could be sold and the taxpayer’s money repaid.
Mr Duncan-Smith warned that if the government tried to change the board. He said: "If we didn't like that, of course the only option would be to get rid of the board. If you do that, imagine what would happen in the banking sector and imagine what would happen to RBS. You would have chaos.
"Remember RBS's balance sheet is as large, if not slightly larger, than the GDP of the UK. What would that do to ordinary people?"
Labour MP Liam Byrne in an interview with Sky News repeated calls that the Prime Minister should have intervened in the bonus row. He said: "This is a bank that the government owns almost all of, the government is the biggest shareholder. Mr Cameron has been talking about how shareholders need to flex their muscles and have a bigger say in the way that executive pay is set.
"Fine - let's keep you to your word, step in now and say that this bonus payment to Mr Hester is wrong and should be stopped," he added.
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