RBS caves in on 'obscene' pay and raises bonuses threshold

• Protesters make their feelings known outside the RBS annual general meeting in Edinburgh. Picture: Jane Barlow

Under existing plans, chief executive Stephen Hester could net a maximum of 4.8 million as a result of the RBS share price rising dramatically. However, the bank yesterday promised to review the current scheme before the payment plan is finalised in the coming weeks.

Shareholders have overwhelmingly backed the new bonus scheme, with 99.2 per cent voting in favour of it at the bank's annual general meeting in Edinburgh yesterday.

Sir Philip Hampton, the bank's chairman, conceded that some shareholders had questions the "appropriateness" of the new scheme – particularly as it includes plans to start paying bonuses to Mr Hester when the share price reaches a minimum threshold of 50p.

But Sir Philip said that the bank's remuneration committee would "take these views into account" before the minimum target was confirmed. The bank's share price closed at 54.95p on the FTSE 100 index in London yesterday.

Although the 50p benchmark represents the break-even point for taxpayers, who own 84 per cent of the bank, the award has angered some investors, who have seen shares slump and dividends scrapped since the bailout of the bank at the height of the credit crunch.

Although the AGM was more subdued in tone than it has been in recent years, shareholders criticising the board for its pay policies were applauded.

One shareholder criticised the "obscene demands" made by some in the banking community. Sir Philip replied that he did not share his view that banking salaries were "obscene" – although he conceded that pay for investment bankers was "dramatically high".

Shareholder John Horrocks pointed out that bonuses – which were often delayed for three years – were still high.

"When the company collapsed, we all thought there would be a change of culture in remuneration policy," he said.

"There doesn't seem to be very much change. Instead of giving sackloads of cash to individuals now, we seem to be delaying it for three years."

Sir Philip defended the company's pay and bonus schemes, saying: "I think the culture of remuneration has changed in this company.

"We can't buck market trends. These are very competitive markets and we have to have the right people and we won't have the right people working below market trends."

But Sir Philip conceded that when the new scheme was set in January, "the share price was sitting at a much lower level than it is today".

UK Financial Investments, which represents taxpayers' stake in the banks, said it supported the new incentive scheme, although it said all measures "must be appropriately stretching".

The organisation also hinted that the bank should "take appropriate account" that since the 50p threshold was decided, the share price had improved.

"We welcome the remuneration committee's assurances that the vesting schedule for the absolute share price measure will take appropriate account of the movement in share price since the beginning of the year," it added.

PIRC, a body which represents the views of major institutional shareholders, said there were "still issues with regards to the remuneration practices at RBS" and criticised the bank's disclosure of its share targets as "inadequate".

Sir Philip told the audience yesterday that the bank had made a "good start" on making a transition from being "a problem to an opportunity".

He said that although the economic outlook for the bank was "clearer and better" than it was last year, "we are under no illusions we are out of the woods".

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