Hester in line for £9.6m to turn around ailing RBS

Published on Monday 22 June 2009 10:04

ROYAL Bank of Scotland boss Stephen Hester has been awarded a controversial £9.6 million pay package to turn around the ailing bank, it

emerged today. Details of the package for the Edinburgh-based firm's chief executive have been agreed by shareholders at a time when thousands of RBS staff are facing job cuts as a result of Mr Hester's strategic review.

The package has caused outrage among taxpayers, as more than 70 per cent of the firm is controlled by the Government, meaning the deal is effectively being funded by the taxpayer.

The pay package was agreed on Friday following a meeting between chairman Sir Philip Hampton and UK Financial Investments, which controls the Government's stakes in RBS, and other top 20 shareholders.

It consists of a 1.2m-a-year salary and a projected 2m of annual non-cash bonus payments.

But the most controversial part of the deal is close to 6.4m of long-term share and stock option awards if the bank's share price rises to 70p. It opened today at 37.2p.

Matthew Elliott, chief executive of the Taxpayers' Alliance, said: "I have got no problem with people in private banks being paid whatever shareholders want. But when the majority of a bank is owned by the taxpayer, as RBS is, this is way more than should be paid."

The actions of banks had come under huge public scrutiny at the time of the Government's rescue deals, with tales of extravagant hospitality and spending.

But the attention has in recent weeks turned to politicians and the expenses scandal.

Mr Elliott said he hopes further focus is now put on RBS and the Lloyds Banking Group.

He said: "I hope this shakes things up a bit and puts the focus back on the state-owned banks.

"Bonuses, pensions and corporate hospitality happening in banks all need to be scrutinised properly."

The performance-related deal is said to be in line with other bosses in private banks. However, it differs starkly from other public sector-backed banks.

Lloyds' chief executive, Eric Daniels, is paid an annual 1m basic salary, plus a maximum of 200 per cent of salary, or 2m, as a long-term incentive. Mr Hester's deal comes in at more than treble that.

In the United States, Citigroup chief executive Vikram Pandit agreed to work for 1 a year and no bonus until it returns to profitability as part of the terms of the bank's bail-out.

However, banking insiders today defended the pay deal, pointing out that if the share price rises to 70p, Mr Hester will have achieved a huge turnaround in the fortunes of the bank, which was close to being brought to his knees before the Government stepped in.

"He would have taken the share price from a 10p low at one stage to a 70p high," said one industry insider. "That is a 700 per cent increase.

"The Government would make an 8 billion profit by the time the share price hits 70p."