David Cameron refuses to act over Stephen Hester’s ‘bewildering’ bonus
Stephen Hester's bonus award has caused outrage among ministers. Picture: Getty
THE UK government last night appeared to wash its hands of the bonus of almost £1 million awarded to RBS chief executive Stephen Hester, despite a clamour for ministers to intervene and block the award.
Calls for action came from across the political spectrum, uniting Conservative London mayor Boris Johnson and Labour leader Ed Miliband.
But Prime Minister David Cameron made it clear that the government would not use its 81 per cent share in RBS to block the bonus, worth about £963,000, being paid in shares.
Mr Cameron let it be known he was pleased the amount was less than half the bonus awarded to Mr Hester last year, when he received £2.5 million.
A Downing Street spokesman insisted that the government’s hands were tied because of a deal signed by the previous Labour government which meant RBS shareholders could only advise on bonuses, not veto them.
However, there were angry claims that under Mr Hester’s leadership RBS is still failing to support businesses properly despite signing the Project Merlin deal with the government to help boost growth. In addition, RBS’s shares are worth less than when Mr Hester took the job in November 2008, after Sir Fred Goodwin was forced out.
Mr Miliband accused Mr Cameron of a “disgraceful failure of leadership” and unions branded the award “utterly immoral”. Mr Johnson said he was “bewildered” by the payout.
London mayor Boris Johnson joined the condemnation, saying he was “at a loss” to justify the scale of the payment.
He said he had sympathy for Mr Hester and wanted an end to “incessant banker-bashing”.
But he went on: “I find it absolutely bewildering, because RBS occupies the same status in the economy as Gosbank did in the Soviet Union: it’s a state-owned bank. The idea that this is not in the control of the government seems to me to be far-fetched.”
Chancellor George Osborne said the only alternatives would have been more expensive for the taxpayer. He said ministers could have blocked the bonus only by tearing up the “arm’s-length” arrangements drawn up when RBS was saved from collapse in 2008 and taking over day-to-day operations.
Speaking from the Swiss ski resort of Davos, where he is attending the World Economic Forum, Mr Osborne said he recognised the frustration over bankers’ pay. But he added: “The alternatives would have been worse for the taxpayer.
“Either there would have been a much larger bonus, of the kind he would have got a few years ago, or the British government would have had to take over complete ownership of RBS and over-ruled the board, and I think that would have cost the tax-payer more as well.”
Meanwhile, Professor Patrick Minford, a leading Thatcherite economist, supported the bonus and argued that better payments for top managers were essential to revive the sector.
He said: “Some argue bonuses are poorly related to results, and shareholders – especially a government shareholder as in RBS – should stop them. But these same shareholders brought in these very packages, to get the managers they needed.
“A vigorous competitive banking sector, attracting the best possible managers, is needed to revive lending and restore vitality to our economy.”
Mr Hester, who this year received a salary of £1.2 million, could receive 3.6 million shares in the 83 per cent state-owned bank. They cannot be cashed in until 2014.
UK Financial Investments (UKFI), which oversees the government’s stake in RBS and other banks, said the figure reflected the “significant contribution” Mr Hester made towards rebuilding RBS in 2011.
While RBS’s share price has halved and the company has shed thousands of jobs over the past year, Downing Street said “good progress” had been made towards achieving its objectives by slicing around £600 billion from an overblown balance sheet and increasing lending to business.
The Prime Minister’s spokesman said it was “ultimately a matter for Stephen Hester” whether he chose to accept the bonus, after Liberal Democrat minister Jeremy Browne issued an outspoken appeal to the banker to turn it down.
Deputy Prime Minister Nick Clegg said he had “a lot of sym-pathy” for Mr Browne’s argument, but insisted it was an “individual decision” for the banker.
Mr Cameron was not directly involved in negotiations over bonuses at RBS, but was kept informed on the progress of discussions between UKFI and the bank’s board, his spokesman said.
Under the contract drawn up by the Labour administration, Mr Hester was “entitled to be considered for a bonus in good faith”, based on performance against his objectives, the spokesman added.
But Lord Myners, a Labour minister at the Treasury at the time RBS was taken into public ownership, said: “There is nothing in the employment contract of Stephen Hester or any director of Royal Bank of Scotland which binds the company or its remuneration committee to pay a mandatory bonus.
“All matters relating to bonuses are at the full discretion of the board of directors and the shareholders, including UKFI, who have elected them.”
Meanwhile, Labour accused First Minister Alex Salmond of being silent on the issue.
But Mr Salmond hit back, accusing Labour and the Conservatives of creating “the unacceptable bonus culture”.
He said: “Banks in receipt of significant public-sector investment should bear in mind their responsibilities to taxpayers, and exercise restraint.
“It’s just a pity that neither [former Labour chancellor] Alistair Darling nor George Osborne ever did anything to bring this about.”
STEPHEN HESTER: AT A GLANCE
Age: 51
Education: Got a First in politics, economics and philosophy at Queen Margaret Hall College, Oxford University
CV: Was chief executive of British Land before joining RBS. Prior to that was financial director at Abbey National and worked for the Swiss bank Credit Suisse.
2008: Appointed by Labour Chancellor Alistair Darling as chief executive on 21 November, 2008, replacing Sir Fred Goodwin after the bank was bailed out
2010: Waived his 2009 bonus (thought to be worth £1.6 million)
2011: Received a bonus of £2.5 million for 2010
2012: Basic annual salary, pension contributions and benefits at RBS: £1.6 million. Has been awarded £930,000 bonus for his work in 2011
TOP PAYOUTS
WHILE there has been fury over Stephen Hester’s £963,000 bonus, it is small compared to what other bank bosses are getting.
Barclays chief executive Bob Diamond is expected to receive around £11 million in bonuses on top of his salary of £1.35m. Last year he received a £6.5m bonus.
HSBC boss Stuart Gulliver is understood to be in line for a £13.9m bonus on top of his £1.25m salary. Last year he received a £5.2m bonus.
The man expected to walk away with the biggest bonus this year is JP Morgan chief executive Jamie Dimon. It is understood he will receive £14.7m on top of his basic salary of £950,000.
Large bonuses have also gone to chief executives of major European banks which have been under fire over the euro crisis. Joseph Ackermann, who has just stepped down as head of Deutsche Bank, received a bonus worth €7.1m for his results in 2010.
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Comments
There are 26 comments to this article
Page 1 of 2
Stewart_in_Oz
Wednesday, February 8, 2012 at 12:13 PM#24. And why should a top footballer earn as much as a top banker, one might ask. It shows that the value system is totally screwed up in general and in those cases in particular.
Stewart_in_Oz
Wednesday, February 8, 2012 at 12:10 PMNow he would DESERVE a bonusridiculous pay rate IF and WHEN he returns the bank to surplus and pays the government back the money that it used to bail the bank out of its shambolic state.
wl
Saturday, January 28, 2012 at 05:01 PMAs long as non-UK banks can pay hugh bonuses, the UK banks will have to do the same or they will not find anyone to run the bank. Why should a top banker earn less than for instance a top football player?
jerrymanders
Saturday, January 28, 2012 at 02:50 PMHis pay and bonus package was reviewed and agreed by the Remuneration Committee less than 12 months ago - this was a Tory decision not a Labour one.
kwcurrie
Saturday, January 28, 2012 at 11:57 AMNearly all of us find this sort of bonus, and the culture surrounding it, quite abhorrent. There would be great support for legislation to stop the scale of such rewards. In this case, unfortunately, we are hamstrung by the contract agreed by the last Government, who also approved the Fred Goodwin pension. Two years of so ago we had the spectacle of Harriet Harman standing up and proclaiming that Goodwin would not be allowed to claim his pension. This proved to be political hot air, as she and her ilk had allowed a contract to determine what he got. They did it again here, so Cameron could say all he likes but can do nothing. What we must see in future is Governments not being party to these extreme contracts. That would be a start, but it should go much further.
Snoopy1
Saturday, January 28, 2012 at 11:42 AMIt just goes to prove "Who is wagging the top dogs tail"it is certainly not its political head,that is for certain,it has put him the dog huose as far the hard working taxpayer's are concerned, "Who is running this country or should i say ruing it"?it is time to get this coalition pack out at the next elections,before we all end up in the dog house barking mad.
wl
Saturday, January 28, 2012 at 11:28 AMIf that is what he is entitled to in his employment contract, he can have his bonus. No problem. As long as it is subject to UK income tax. And he won't be the only person in the UK to earn more than £ 2 mln.
Centris
Saturday, January 28, 2012 at 11:23 AMAny bonus should not be greater than one years salary, period.
Dragonlord
Saturday, January 28, 2012 at 10:29 AMThe main point is he is already being well paid. If he has brought suscess then he may be worth a small bonus but then so would very worker in the land. Where would it stop? Time to dump this system.
Blantyre Bill
Saturday, January 28, 2012 at 09:26 AMAs the bonus of Mr Hester has to be approved by the board of directors, they are responsible for the amount of bonus being paid to Mr Hester.
donsmalc
Saturday, January 28, 2012 at 08:57 AMJust look at the photo. Tells you all you need to know.
cabrach loon
Saturday, January 28, 2012 at 07:48 AMThe whole cult of bonuses is out of control. There should be no bonuses for the public sector and no bonus should be greater than one months salary. The lack of morality and the sheer greed and arrogance of these people valuing themselves so highly is a disgrace but that being said the situation regarding footballers and other so called celebrities is just as bad.
cam2644
Saturday, January 28, 2012 at 07:47 AMRarely have I seen a politician being so dishonest as George Osborne on TV yesterday. It's clear where his interests lie and it's not with the ordinary voters.
Argungu
Saturday, January 28, 2012 at 07:43 AMA contract was drawn up between the UK Government (Prime Minister Gordon Brown and Chancellor Alistair Darling), the largest shareholder in RBS, and Steven Hester in 2008. This contract appointed Hester CEO of RBS quoting a salary and other incentives. The salary and incentives would be reviewed annually relative to meeting any or all the targets set out in the contract. If, after signing the contract, Government tried to modify it in any way Hester would be able to sue for breach of contract. Rather like the Edinburgh Tram, if the employer gets the contract wrong the contracted party would most likely sue for breach of contract. The question to be answered is why did Labour write such a generous remuneration package?
gus1940
Saturday, January 28, 2012 at 07:20 AMIf he was receiving a cash bonus it would be taxed at 40%. What is the tax position when the bonus is in shares?
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