RBS bows to pressure with £900,000 bonus for Stephen Hester

A HIGHLY controversial bonus for the chief executive of the Royal Bank of Scotland (RBS) has been capped at just under £1 million, the organisation announced last night.

RBS said Stephen Hester, who is on an annual income of £1.2m, will receive a share-based bonus for 2011 worth around £963,000.

It is less than half his bonus last year and comes after Prime Minister David Cameron made clear he considered a seven-figure sum would be unacceptable.

The bank said its board had allocated Mr Hester a 2011 annual performance award of 3.6 million shares based on RBS’s closing share price of 26.75p when the decision was made at a board meeting on Wednesday.

The bonus award is down from Mr Hester’s figure of £2m last year, but RBS said he still deserved reward for having made “substantial progress in making RBS safer”.

Philip Hampton, chairman of the 81 per cent state-owned bank, said: “The board is aware of the difficulties in trying to reconcile the competing objectives of all our stakeholders. This is especially true on the issue of pay.

“Stephen Hester’s pay award reflects progress in the categories agreed with our shareholders as set out in the remuneration report.

“His pay is strongly geared to the recovery of RBS, which he was recruited to turn around, having played no part in its collapse.”

The move is believed to be aimed at dampening the growing furore over financial rewards to Mr Hester and other high earners.

Last night, Labour said the scale of the bonus showed the government was “desperately out of touch” with voters and that its promises to rein in executive pay were worthless.

But Murdo Fraser, Conservative MSP, said the bonus issue could be traced back to the “stewardship of Gordon Brown and Alastair Darling”, who were responsible for putting the remuneration contract in place.

Earlier this week, trade unions criticised the level of Mr Hester’s expected bonus and highlighted the number of job losses – 30,000 over the past two years and a further 3,300 announced earlier this month – by RBS and pointed out its falling share price.

Senior sources at RBS had indicated over recent weeks that the bank wanted to pay Mr Hester a large part of the share bonus for which he is eligible.

Mr Cameron has made it clear he would regard a bonus of more than £1m for Mr Hester as unacceptable.

Yesterday, speaking at Business Questions, Shadow Commons leader Angela Eagle said the government must step in.

She said: “Perhaps you could explain why RBS, a state-owned bank, bailed out by the taxpayer, wants to give their chief executive a £1m bonus this year.

“The board of RBS is thinking of paying their chief executive in one day more than someone on average earnings would make in a lifetime.”

Mr Fraser said: “I welcome the step RBS has taken as a recognition of public concern over the level of bankers’ bonuses.

“But Labour are simply shedding crocodile tears on this issue, after all it was under Gordon Brown’s and Alastair Darling’s stewardship that the remuneration arrangements for Mr Hester were put in place.”

Labour shadow financial secretary to the Treasury Chris Leslie said: “Nobody doubts that Stephen Hester has done some important things at RBS, but what this award shows is David Cameron’s promises about reining in excessive bonuses at state-owned banks or using shareholder power have proved to be utterly worthless.

“Instead of fiddling at the margins of this issue, David Cameron should take proper action on excessive executive pay as well as agree to Labour’s call for a new tax on bankers’ bonuses this year to fund 100,000 jobs for young people.”

The decision on Mr Hester’s bonus comes after Business Secretary Vince Cable unveiled proposals to crack down on hefty salaries and bonuses, including binding votes for shareholders and improved transparency.

However, the RBS’s concession on Mr Hester’s bonus will not defuse the row over directors’ pay completely.

John Hourican, head of RBS’s investment arm, who will oversee a restructuring that will include around 3,500 job losses, picks up £4m in long-term incentive shares that he was awarded in 2009.

Meanwhile, Britain’s biggest banks are expected to unveil their bonus plans next month when they publish their annual results.

Antonio Horta-Osorio, chief executive of part-nationalised Lloyds Banking Group, announced he would forgo his annual bonus of up to £2.4m following his two-month leave of absence and a rocky period for the banking giant.

Elsewhere, reports have suggested Barclays boss Bob Diamond could receive a £10m payout in the forthcoming bonus season.