RBS caves in to political pressure as Hester rejects £1m bonus
Stephen Hester, the chief executive at the Royal Bank of Scotland (RBS) has announced that he will not accept the controversial bonus of shares options worth £963,000 that was to be awarded to him.
Mr Hester has been under increasing pressure to turn down the bonus after government officials said that they were unable to intervene over the decision to award the bonus.
The remuneration committee of RBS awarded Mr Hester the bonus, which was half the level of the bonus he was awarded last year, after assessing that he had made progress in the five areas of RBS’s business that form the criteria for triggering the award.
However, politicians across the political divide have expressed criticism that a bonus be awarded to the top man at the helm of a bank that is 83 per cent owned by the UK taxpayer after needing a £45 billion bailout from public money in 2008.
Subsequently, in 2009, the Labour government brought in a new team, led by Mr Hester, whose task has been to repair the bank’s balance sheet, sell off loss-making parts of the business and refocus the bank’s activities away from risky investment banking to retail banking.
The Labour government negotiated the pay and bonus structure of Mr Hester’s remuneration including the long term incentive plan that could see Mr Hester awarded up to £8 million of shares in the future.
The board at RBS believed that Mr Hester deserved his bonus because of his success in making RBS a less risky bank. However, the anger from the public at a time when many people are worried about their jobs, when pay increases are below inflation or non-existent and when public sector jobs are being cut contributed to the political pressure on MP’s to express their disagreement towards the bonus award.
Labour threatened to force a parliamentary vote to halt the award of the bonus. Once the board at RBS became aware of this they realised that the commons vote would go against the award of the bonus. This led to the announcement that Mr Hester would waive the bonus.
Part of the strength of criticism has come from the perception that Mr Hester is in effect a public sector employee in this role and is working on behalf of the taxpayer. This has led to much of the anger over the possibility of a bonus being awarded to him, especially when the share price, crucial to the taxpayer receiving their funds back, has fallen this year to below half of the break-even figure required for the bank to be sold at a level that repays the public debt.
The Chancellor, George Osborne said that the decision to revoke the bonus was “sensible and welcome”.
Labour leader criticised the Prime Minister David Cameron for being “out of touch” and not standing up for the interests of the British people.
Mr Miliband said: "Labour was right to seek a parliamentary vote on this so that the people's voice could be heard."
RBS Group Chairman, Sir Philip Hampton announced over the weekend that he would give up his £1.4 million bonus.
However, senior bankers believe the political interference and influence sets a dangerous precedent of allowing other interests to override the business decisions of the people in charge of the bank.
The decision by Mr Hester not to accept his bonus is likely to increase the pressure on Barclays to display some level of modesty in the bonuses that it issues to its boss, Bob Diamond. The pressure will be less acute because Barclays did not require a bailout by public funds during the credit crunch in 2008.
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