A TOP finance official yesterday defended the potential £9.6 million pay deal granted to Stephen Hester, the chief executive of Royal Bank of Scotland.
John Kingman, the chief executive of UK Financial Investments (UKFI) – the company created to manage the stakes taken by the Westminster government in major banks as part of a massive bailout package – said he was "very comfortable" with Mr Hester's
pay deal.
He stressed that it required Mr Hester to hit performance targets that will give shareholders a healthy return.
But the agreement has angered shareholders, unions and some politicians, coming as it does so soon after a scandal over the multi-million-pound pension bestowed on Mr Hester's predecessor, Sir Fred Goodwin, whose aggressive expansion of the bank was blamed for its downfall.
"The key point about it is that his reward is very highly geared to the return the taxpayer will make on his investment," Mr Kingman said during a conference at the London Business School.
"I also think we have a very strong interest in being able to retain and recruit high quality people.
"We need serious people to run these banks."
The government holds a 70 per cent stake in RBS through UKFI. It also has a 43 per cent stake in Lloyds Banking Group, which took over HBOS in a deal completed earlier this year.
Mr Kingman said any move by UKFI to pay lower salaries to bank executives than other institutions would not be a "sensible gamble to take".
Under the agreement, Mr Hester will receive a fixed £1.65m cash payment, including salary of £1.2m.
To receive the full amount, which includes bonuses, shares in RBS would have to average at least 70p over 30 days during the last six months of the performance period, which covers three years from the start of 2009.
If the shares hit 55p, Mr Hester will get 50 per cent of the amount. If they remain at 40p he would get 25 per cent.
The bank's shares closed up 2 per cent at 38.94p yesterday.
"If Stephen does well on his package, I will be extremely happy because the taxpayer would make a profit," Mr Kingman said.
The salary package was announced at the same time retailer Marks & Spencer said its chief executive and marketing officer had offered to forgo a third of their long-term bonus awards and as British Airways chief executive Willie Walsh and other board members agreed to forgo their salaries for July.
