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Hester's Royal remuneration

Robert Peston | 09:25 UK time, Monday, 22 June 2009

Royal Bank of Scotland's board is this week expected to approve a remuneration package worth up to £9.6m for the chief executive who replaced Sir Fred Goodwin (RBS is holding board strategy meetings on Tuesday and Wednesday).

This anticipated formal decision on the pay of Stephen Hester follows a meeting on Friday at the bank's London office between RBS's chairman, Sir Philip Hampton, and representatives of the bank's leading shareholders - which has been the culmination of months of negotiations on an issue that has become fraught and controversial for all big banks.

Stephen Hester

Shareholders who gave their assent to the package proposed for Mr Hester included UK Financial Investments, the arm of the Treasury, which manages taxpayers' 70% stake in Royal Bank.

What's mildly amusing is that UKFI was - I am told - adamant that the package should be worth marginally less than "double figures millions", presumably as insurance against the more sensational of headlines about the apparent return of boom time for bankers.

The package for Mr Hester has three elements: basic pay of £1.2m per annum; up to £2m of bonuses, payable in subordinated debt rather than cash (because RBS agreed with the government last year not to pay cash bonuses for a period); a maximum of £6.4m in long-term incentives, payable if share price targets are hit over the next three years.

In respect of the £6.4m long-term part, half is payable if the share price were to hit 70p (compared with 37.5p this morning) and half if the return to shareholders over the coming three years were to be superior to most of Royal Bank's competitors.

However, the payments wouldn't be automatic: Royal Bank's board would have the discretion to claw some or all back, if directors didn't believe the share-price rise had been caused by the sensible management decisions of Mr Hester (so his reward might be reduced if Royal Bank's share price was inflated by takeover speculation, for example).

Now let's stray into the land of the bloomin' obvious, to look at why Mr Hester's package will be controversial.

First and most obviously, Royal Bank is cutting thousands and thousands of jobs, perhaps up to 30,000 in the coming two years or so.

Second, Royal Bank is 70% owned by taxpayers. And at a time when the public sector is expected to be squeezed hard, it may look odd to be paying so much to the boss of a publicly controlled bank.

Third, all the banks are under pressure to increase their lending to businesses and households. For example the governor of the Bank of England agonised in public last week about how economic recovery might be put in jeopardy by the inadequacy of credit made available by banks.

Why is that relevant? Well, for the chief executive of a bank, the safest way to increase profits and the share price at this stage of the economic cycle - apart from slashing costs and cutting jobs - is borrow from retail depositors at close to 0% and then lend to the government by buying relatively risk free long-term gilts paying 4%.

The Treasury is aware of this risk. Which is why it has forced Royal Bank to agree quantitative targets for the amount of credit it will make available to businesses and households. But there is a piquant question whether Mr Hester's remuneration incentives will deter the bank from providing more than this minimum.

All that said, one paradoxical reason for paying that kind of money to Mr Hester is also - funnily enough - that taxpayers own the majority of the shares.

He is widely regarded as that rarest of animals, an untarnished world class banker. And we surely can't complain if a competent individual is running a state institution (and he insisted on writing into his contract that if he were to turn out to be a dunderhead, he would not receive a penny on being sacked).

Also, if Mr Hester were to make the full £9.6m, Royal Bank's share price would need to have risen to more than 70p over a sustained period - which would yield a profit for taxpayers on our 70% stake of £8bn.

Which looks a reasonable deal for the state - unless you think, as many do, that because bankers were to a large extent to blame for the economic mess we're in, it's too early for any of them to be earning this kind of money (even if, like Mr Hester, they are being paid to clear up the mess created by other bankers).

Comments

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  • Comment number 1.

    The bank has actually been pretty clever with how it's presented this package! Apart from the "keeping it under £10 million" effect, they have presented it in quite a smart way which will defuse a lot of potential outrage:

    http://www.knowingandmaking.com/2009/06/stephen-hesters-pay-package.html

  • Comment number 2.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 3.

    Hester is ok, a good manager who will try to see the bank right. Whether that is possible is another thing. Hampton as chairman conerns me more, he is seen as a city grandess, but does not have a great track record.

  • Comment number 4.

    I'm still trying to fathom why banks are under pressure to lend to households!

    Maybe a plan (or some visibility of THE plan) would help. What do the Gov think household debt currently stands at? What do they think is a reasonable amount of household debt? If this is a Gov initiative how much of it will be underwritten by the Gov and will the underwriting be to help the Banks or the householders who are being targeted by the Gov now to help the economy, rather than being targeted by the Banks to help the Banks those poor householders eh they get it every-which-way!!!

    There is also a hint of Hesters objectives deliver 8 billion in share profits over 3 years God Im glad we got rid of those potty fund managers that pressured Chief Execs into ridiculous business decisions for massive profits!!!!!!

    Socialists running a capitalist system it was always a non-starter wasnt it!

  • Comment number 5.

    I'm glad that the package is less than "double figures millions". That would have been obscene, whereas 9.6 million is entirely fair and reasonable. Yeah, right.

    The whole system seems to assume that the person at the top is somehow single-handedly responsible for the performance of the whole company. This is just plain crazy, especially for a company the size of RBS.

    Do we really want people in power who feel that it's morally acceptable to get paid 9.6 million whilst making 30000 people redundant?

  • Comment number 6.

    I have just read your article, "Hester's Royal remuneration" and noted this section, "Also, if Mr Hester were to make the full £9.6m, Royal Bank's share price would need to have risen to more than 70p over a sustained period - which would yield a profit for taxpayers on our 70% stake of £8bn". I also read this article, "RBS boss set for £9.6m pay deal" and noted this section "It is important that the incentives are linked to the share price because the government is keen to sell its shareholding, which was bought at a price of about 50 pence a share".
    Now for me, "about 50p" doesn't cut it, the correct amount should be known. I made a note at the time the TAX PAYERS took a stake in RBS and the price per share was 65.5p per share. I would expect at least a 20% per annum return to compensate us for all the trouble these incompetent banks have put us though.

  • Comment number 7.

    Hear we go again, other farcical and obsene salary paid to the banking fat cats. Will they never learn - thank God I and my wife closed our long standing accounts with this bank as a result of the last disgrace.

  • Comment number 8.

    Can't complain about his remuneration package. Must be a slow news day - compare what he will earn to his contemporaries at HSBC and Barclays - it's less than half for sure.

    Hester is an eminently capable man, not spectacular, but intelligent and steady, probably what this collapsed former giant star needs right now...

  • Comment number 9.

    Normal service is being resumed then?
    It's a shame if a well structured deal is just pulled apart by public opinion of a headline rather than assessed and then judged.
    Nobody believes that bonuses or huge wages will return to the banking industry - they will be dressed up in a variety of names and structures but they will return - as that is the culture and nature of the beast.

  • Comment number 10.

    A bonus for getting the RBS share price over 70p during the next 3 years. Thats too easy.

    RBS should have used a tender process like that used for rubbish collection to auction off the job at RBS.

    So either the UKFI is not fit for purpose or the treasury is saying we are at the beginning of the great depression mark 2.

  • Comment number 11.

    No doubt the socialists will be out in force on this one. However in my view Hester's proposed package makes good sense for taxpayers, for shareholders, and eventually for workers in RBS.

    If Hester is as good as you say he is Robert then he would be worth every penny of his salary of £1.2m. I suspect that is at the lower end of most FTSE companies and by comparison equivalent to just nine weeks of Frank Lampard's salary. The bonus structure also looks to be significant. If RBS shareprice were to go to 70p it would mean it had virtually doubled from last week, and would reflect the probability that those who buy shares see significant potential in future earnings and stemming of the losses. That would mean a profit to the Government (us), to shareholders, and the chance that RBS could get back on track as a succesful bank and employer. We need to back winners and if Hester is one such person then we shoulf support him.

  • Comment number 12.

  • Comment number 13.

    Here we go again! Totally disproportionate reward for an individual to massage the shareprice of a large organisation. Whatever Mr Hester contributes he cant do it all by himself and how can a government give its blessing to such an outrageous remuneration. The criteria for success surely should be what RBS contributes to the sustained recovery of the British economy and to the welfare and prosperity of its employees and customers. Another deeerr! from Brown and co.

  • Comment number 14.

    Poor Hester, how will he get by?

  • Comment number 15.

    You have to be joking. Try to spin as much as you want. Try to suggest the taxpayer will be making a bigger profit. If you are going to pay such sums to our taxpayer bank it gives permission for private banks to over-pay.
    We have not learnt anything yet. Luckily the next leg down will hit sooner rather than later as we start to look at off-balance sheet toxic assets and realise there remains no market for them. Writedowns so far have been the beginning, not the end.

  • Comment number 16.

    I despair!
    Whilst millions of us struggle to make a decent living - the leader (no matter how good his track-record) of a bank which only exists thanks to OUR taxes is to potentially earn such obscenely astronomical amounts.
    Still, I guess the relatively underpaid PM, MPs & Governor of the Bank of England must feel peeved too?

  • Comment number 17.

    Why was the BBC claiming this story as a scoop earlier this morning LATEST:RBS board set to approve remuneration package worth up to £9.6m for chief executive, BBC learns)?

    It was in today's Financial Times and on the FT.com website last night

  • Comment number 18.

    Whatever the justifications it seems politically absolutely stupid for the government to "approve" this. When bank employees (RBS and others) are losing their jobs all the time and those remaining feeling less secure, etc. how will they feel. With employees through the country losing their jobs and those without jobs unable to get employment, how will they feel. Yet the government approves such massive pay-out to an employee.

    One might justify it by looking at the profit he has to bring to get the bonus (i.e. we all benefit). However, somebody that requires such ludicrous motivation to do their job is not the right person for the role. People should be motivated without needing the obscene packages.

    At this point in the recession, with unemployment rising for some time to come this government has shown how it is on the side of ludicrous pay-outs - despite the banks still running on taxpayers money and running on tax-payers money at the time this person will get paid this staggering sum.

    Again the government show it has no empathy with the public. No idea about how people are feeling, how they are struggling and how this looks to them.

  • Comment number 19.

    I fail to see why anyone is surprised by this preposterous package. It is abundantly clear that our political, economic and financial masters have not learned a single thing about why the whole banking system collapsed - and will do again in the near future when the Government is no longer able to pump any more money, which they don't actually have, into the system.

    How on earth could they learn any lessons from their recklessness when they were spared the consequences of their actions? It is rather like the school bully, rather than his victim, being given a free holiday and then asked (nicely) to behave properly next time. Yeah, really likely, that one.

    Bankruptcy here we come - this time kicking and screaming.

  • Comment number 20.

    Why does he need £9 million? Why do we still think the only possible measure of someone's worth is money and more money, and the only possible incentive to do anything well is money and more money? Isn't that what got us into this trouble in the first place? Footballers on £180 grand a week sulking because another footballer is on £190 grand a week. What does anyone need that kind of money for? Bankers and footballers can't ever answer that except to say that it proves their worth, or they must take it because its the market rate. All we do is create insider groups whose main purpose in life is to get to the "top" for deeply unhealthy reasons. The process of getting to the "top" warps and twists the individuals who get there. We all lose.

  • Comment number 21.

    Measuring this bloke's performance in terms of the RBS share price is very old fashioned. What we should be doing is creating an index that allows us to judge what benefit RBS and the other banks are to economic growth and to broadening the economy.

    So for example, when they lend to a private equity company or hedge fund the index should drop; when they lend to or invest in a start-up or early stage company it goes up; if house prices start rising or the trade gap begins to widen again then of course it should also go down.

    It would help define what use the banks really are to the econony and so determine their true value ....

  • Comment number 22.

    plus ca change, plus c'est la meme chose

    to miss-quoute an old saying "It`s the rich wot gets the pleasure it`s the poor wot gets the pain"

  • Comment number 23.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 24.

    Later, when it's found that a terrible mistake has been made and the cost of the package is then re-estimated as being far too high, will the contract be looked at, and to everyone's surprise, will it be found that legally, nothing can be done to adjust it?

    Doh!?

  • Comment number 25.

    I've just been talking to a long-serving member of staff from RBS who has been in fear of losing her job for a year now. What sort of impression will this news have on hard-pressed employees. The morale at RBS and Natwest is as low as it has ever been. There needs to be an awareness that the cost of failure can be counted in more ways than just the financial implications. We've "lost" our banks as well as a bucket load of taxpayer cash. We need to get them both back!!!

  • Comment number 26.

    I have to agree with egonon.

    I am always puzzled that 1 person is seen as the be all and end all.

    When is there going to be a company that has steady graduated differentials where everyone gets the same percentage increases ( assuming measured performance ). Strangely the ordinary staff get low percentages while senior managers generally get considerably more.

  • Comment number 27.

    It's not even worth commenting upon.

    Clearly there are enough people in the financial industries who are so addicted to the gamble of the markets, that the dear old cycles will just go around and around.

    Clearly, if this guy asset strips the group, lays off loads of staff, gives out cheap (and poor quality) service to the customers, and waffles to the shareholders, he can pretty easily make a huge paper profit and therefore get rewarded excessively. (That's not very difficult - so why pay him a fortune to do it?)

    But these obsessives don't have any idea of 'over-milking the cow', or 'killing the golden goose'. Track record shows that. They're like alcoholics, they will always say 'yes' to just one more drink / business gamble.

    Neither Gordon Brown, nor anyone else, will ever stop "Boom and Bust" any more than we'll ever see a world without alcoholism or other substance dependencies.

    It seems to me that the only thing that has been learnt by bankers from the crisis is that the Government WILL bail you out if it all goes belly up, because your bank will be seen as being "too big to fail", or because they'll be afraid of you failure de-stabilising the industry.

  • Comment number 28.

    No matter what the explanation nobody needs this much to do this job, which is to convince the city and its shareholders that the price of the share should go up. Sounds like a win or lose game that would be in more chance of winning if they employed someone for a lot less.

    The annual wage alone is obese and should be a lot less given the poor state of the company. The bonuses are irrelavent if the success criteria of the third part isn't met.

    Finally he's given gross amounts if he achieves these targets so the flip side I expect him to be sacked without compensation or pay off deals if he doesn't.

    Personally I'd do the job for £250,000 a year with a £1,000,000 reward if the target was achieved. I'd feel richly rewarded and happily step down if I failed to achieve this with no pay off.

  • Comment number 29.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 30.

    pie in the sky amounts that beggar belief.
    no matter how good the person is they will never earn enough to warrant such high pension rates.
    it appears that the lesson has not been learnt and greed still runs rampant through this countries financial sector.
    sadly the only way these organizations will learn is if its investors pulled out. i am looking for a new bank after this story.

  • Comment number 31.

    Two things I would like to have read in this posting is: 1) what is the comparable package for the head of Northern Rock (if we are allowed to use that name any more)and 2) what,if any, is the banks contribution to the pension plan for Hester! I gather you feel this is a fair deal or rather Gordon believes it is?

  • Comment number 32.

    I for one am amazed at the package offered.. £1.2m basic for one seems high especially for someone who belives so much on their talent to turn the organisation around.. £9.6m why so high, can't poor Mr Hester live on £3-4m... £8 billion return.. do you think that really compensates the Tax payer for all the economic damage that has been done by this mess.. Let me take the reigns at RBS.. to get the share price to go over 70p.. I think that over the next few years a monkey running such a big organisation could get that kind of return because all share prices will go up naturally as the economy returns to an a more normal mode of business.. this is like the traders in the dot com era.. you would have to have been an idiot not to be able to pick a rising stock and make £2m in bonuses as the entire market was rising !!!
    Someone in the Government certainly hasn't considered this enough and needs to be sacked for their sheer incompetence !!

  • Comment number 33.

    More debt to stabilize a debt-inflated economy, more millions for bank managers to put a remedy to bank managers' remuneration-induced folly. The unemployed hail. See you a few years from now.

  • Comment number 34.

    Just in time!!!

    There was a chance that Robert and many others were going to run out of people to discuss just because they earn a big salary.

    Of cause it does not matter how much time and commitment it has taken these people in the jobs to get there. Well done to you Mr Hester, In my world you have earned the right to to have the job and take the salary that come with it.

  • Comment number 35.

    There is a fundamental misunderstanding of the way in which remuneration systems are structured. The determinants are (a) what is paid to the LOWEST full-time grade in the company, and (b) the NUMBER OF GRADES or levels there are between the bottom and the top. There must be sufficient of a difference between each grade to make promotion (from within) a viable option; i.e. the extra must be seen to be sufficient incentive to offset the greater responsibility and hassle. When you have a large and complex set-up like RBS, this inevitably means that the top strata receive "obscene" remuneration.

    The importance of maintaining a distinct difference between grades was very apparent in the Police, when overtime-earning Sergeants routinely received far more than Inspectors and the Police found it virtually impossible to promote the men with practical, hands-on experience into managerial posts.

    That said, if we walk off with £8/10 BILLION in profit, then Hester shall have been cheap at 10 times the price.

  • Comment number 36.

    Absolutely staggering. And HMG approves of this on our behalf? Not on my blo*dy behalf they don't! How can anyone justify this kind of reward? I understand the "We have to pay well to get the best people" argument, but there is a world of difference between attractive remuneration and obscene overpayment.

    I accept as a taxpayer that pumping cash into the banks that, as it turned out, couldn't run a temperature, let alone a business, made good sense during tough times, but paying any individual this fabulously well leaves me wondering about our collective sanity as a nation. He's a guy in a suit; he's not the next messiah (although he sure knows how to turn a prophet. Boom-boom!) and he can't do miracles, I suspect. OK, so he has to cover over the cracks left by his former colleagues and work out how to get back to 'business as usual', getting rid of HMG's less-than-probing overseers, but... Oh, that's it. I need a lie down now.

    I hear that Fred Goodwin now lives in France. I wonder if he needs a gardener; I'm his for a mere £5 million.

  • Comment number 37.

    This is ludicrous! Have no lessons be learned from the previous few months, let alone years of boom and bust banking? Surely its in the Bank's best interest to get the best man for the job at a reasonable salary.

    How has this man not priced himself out of a job? I'm sure there are many other bankers as skilled as him available for less money, or offer him a rewards scheme based on RBS's future performances.

    If the bank was completely private and making money, fair enough. But as I own a minute proportion of this conglomeration, along with millions of others, I demand value for money.

  • Comment number 38.

    9.6m package?

    1.2m x 3(years) = 3.6m.
    2m "bonuses" ...is this more than 1 x 2m bonus? - 2m or 6m over 3 years?
    ++++ = more than 9.6m by a long shot.

    What about share options? are these included in the long term bonus, or are they extra?

    Still, £8bn profit target for major shareholder. This is a small price. You always get what you pay for....but proper transparency would be good without the spin doctors getting involved.

    As for the 30k people losing their jobs? - RBS has grown through acquisition. Cutting people costs are an obvious place to make these acquistions work. Besides, if the taxpayer hadn't stepped in, this could have been over 100k people losing their jobs & out into the financial services market. Stephen Hester has to manage this change within his organisation.

    I reckon we're getting him cheap.

  • Comment number 39.

    I have a lot of respect for Stephen Hester and have little doubt the right man is in charge at RBS.

    But this level of remuneration is disgraceful....it's simply too high and the targets - 70p or outperforming rival share prices - are not challenging enough for a bank that has so much scope to recover from its current mullered state.

    The government talks the talk on remuneration but when it is faced with the same pressures as anyone else to pay it, it doesn't walk the walk.

    So much for a brave new world of banking when you can't even implement your supposed ideas in your own backyard.

  • Comment number 40.

    Some odd arithmetic here. The £1.2 million is per annum, the £2 million bonus might be per annum or might be total, the £6.4 million seems to be maximum total for Mr Hester's term of office.
    So £9.6 million only makes sense if he is hired for one year, which doesn't make sense.

  • Comment number 41.

    Having been forced to save the skins of these bankers I see that their obscene greed continues just a before.

  • Comment number 42.

    #4 - thinkb4

    Agreed! I thought that unmaintainable levels of household debt based on an overheated property market and the resulting misrepresentation of risk in that sector were the *problem*, not a desirable state to be returned to!

    We were moving towards a state that was rapidly disenfranchising an entire generation by keeping property the exclusive realm of those that already had it or those that were prepared to virtually enslave themselves to the bank. We were moving toward a state where a large proportion of the UK economy was based on consensual delusion about the value of our own bricks and mortar.

    Why exactly are we trying to get back there?

  • Comment number 43.

    I still do not see why anyone in charge of a large corporation, or working for the government is entitled to so much more money than the rest of us. OK they might be a bit better than the average bloke, but not a thousand times better.

    The only people worthy of great wealth are those who have stuck their neck out and risked their own capital, such as entrepreneurs.

    It's surely obvious that those in power have formed a sort of cartel whereby they each approve each others' excessive pay and bonuses. It's the same sort of corruption we see in the house of commons.

    I think that until society as a whole realises this then there is not much hope for this country.

  • Comment number 44.

    only 41 comments by 11.35

    Goonwin has been forgiven, Hester has been accepted.

    As an aside if you are an ISA customer of Nat West it would pay you to move to RBS the rates are better. Positive discrimination for once in favour of the Scots.

    http://www.rbs.co.uk/personal/savings-investment/g2/isas/cashisa.ashx

    http://www.rbs.co.uk/personal/savings-investment/g2/isas/cashisa.ashx

    Or you could go elsewhere.

    I have

  • Comment number 45.

    I am fed up getting posts `moderated`. This is not quite Iran although getting there very quickly under Bias Corp and Liebour - bring back Fred the Shred ASAP - what is the difference between him and Hester?????

  • Comment number 46.

    I said the solicialists would be out in force.

    15 How sick is your comment "Luckily the next leg down will hit sooner rather than later".

    Who do you think it would hit?

    Workers? For sure.
    Tax payers? For sure
    Pension funds? For sure.
    Small shareholders? For sure.

    What in the name of hell is lucky about that?

  • Comment number 47.

    The RBS share price in 2007 peaked at around £5.50 - and this guy picks up a bonus if it gets to 70p ? Nice one - this is taxpayers money you idiots - and when you're planning cuts across the public services in the next two to three years then this is just further evidence that you treat taxpayers with contempt

  • Comment number 48.

    Can we please, once and for all, dispel this myth that in order to "secure the best talent" we have to pay obscene amounts of money. How many bank Chief Executive jobs are there, for goodness' sake? And if the services of Mr Hester can't be secured for something approaching a sane salary, I'm sure there are numerous other potential candidates with at least the same skills - and possibly better, given the less-than-stellar performance of recent incumbents. And you need to look to yourself here, BBC... would it really be the end of the world if the overpaid talent that fills our screens were to defect somewhere else, if we didn't shell out a major component of the licence fee to them? Where would they go? What superior offers can the opposition make? Would we care if they were lost? Is there no-one else among the 60 million inhabitants of this country who could do the job? It's all a huge, great con perpetuated by those who stand to suffer if it's ever blown apart!

  • Comment number 49.

    If I had money I'd be considering buying shares in RBS... 37.5p per share is quite low isn't it?

  • Comment number 50.

    What planet are these people on?

    Oh thats right its the planet "Lets rip the taxpayer off and award ourselves massive bonuses whilst Joe Bloggs struggles"

    Disgraceful, disgusting and a complete farce.
    This Government and the banking Industry have failed us all miserably.
    And still we allow it to go on year after year..we deserve everything we get.



  • Comment number 51.

    The powers that be just don't get it. This level of pay just looks awful especially to those who are struggling to live on an average wage of £25k or less. No one needs to earn this amount - you cannot actually spend it in any meaningful way and it makes the City, the banking industry and government look like nothing has changed and no lessons have been learnt. Would this chap resign if he was not paid such a huge amount? Of course not. Agreeing to schemes like this just alienates people from the City. This chap is not taking any personal risk, he is taking over a pretty well run bank - admittedly with problems - he has access to the best advisers and colleagues money can buy, he already has a fortune so why is the tax payer agreeing to pay such a huge amount? It is scandalous and turns the majority of the population against business at a time when we need to foster enterprise, wealth creation and industry.

  • Comment number 52.

    yet another banking story, dosnt Peston realise that there's more to business than the finance sector

    how about an article on the disintigration of the rest of industry

    car manufacturing down 50%, construction laying of tens of thousands plants closing whole communities in crisis

    we've got the 'message' about the banks and how its all their fault not labour's so can we have something about the real economy now please

  • Comment number 53.

    And for what!! Pretty much non-value adding activities I suspect. On top of that lets see under the freedom of information (I jest) what sort of alleged expense account is being run-up on the tax payer account!! WE the general public WE, have MUGS written across our foreheads, and yes the word GULLIBLE does not appear in the dictionary..........

  • Comment number 54.

    It is simply obscene.
    I seem to recall the government wanting the city to get salaries and bonuses under control. Is £9.6m considered "under control"?
    There were plenty of bosses running the banks a couple of years ago who were considered "untarnished world class bankers".
    If Hester were guaranteed to make no mistakes and there was no one else that could run the bank then maybe he would be worth it.
    But there are no guarantees and he's not that much smarter than others that would run the bank for a fraction of £9.6m.
    For the share price to rise above 70p, all it would take is for confidence to return to the banking sector and I would certainly not consider 3 years a "long term view".

    Finally, I seriously question the morality of a person that demands £9.6m. With all the hardship both at home and around the world, this level of remuneration is simply obscene.

  • Comment number 55.

    Actually the real problem I have is that I just don't believe that running a bank is a particularly difficult thing to do and that it doesn't take anyone special to do it.

  • Comment number 56.

    So banks may return to boom times eh?
    (Thanks to the taxpayer and the extraordinary conditions now in place).
    Let's hope they don't forget that they owe the exchequer hundreds of billions.
    Even the banks who did not need public money had their bacon saved by Joe Bloggs, and they know it.
    Perhaps a special levy on the profits of ALL banks until the public gets a fair deal.
    "Profits" should be calculated before the bonuses are handed out.

  • Comment number 57.

    nothing against the man himself, but this just proves we no longer live (if we ever did) in a democracy

    What is wrong with a fixed salary ? and lets face it I could run the company and make its share price rise above 70 pence



  • Comment number 58.

    It's a difficult balance. Banking policy is hitting current customers hard by being very inflexible e.g. credit card and overdraft agreements being striclty enforced yet at the same time trying to promote new lending. Where are the new customers?

    Good business strategy has always been about keeping customers loyal. Just ask those pioneering store owners who would give credit to customers until pay day or goodwill if a spouse was to leave a widow. The creation of long term and mutual trust. Because this ethos has been undermined since the late 20th Century it will be hard to get such trust back into our culture. At the rate the banks and similar financial institutions are going I don't hold too much hope.

  • Comment number 59.

    Re Stephen Hester's salary. I think that anyone who would expect, or accept, a £9 million salary for this job is by definition unsuitable for the post. I would have though that up to say £100,000 was more than adequate. Please don't tell me that it may be in our interest to pay this amount of money. If a robber breaks into you house, and you wake up with a gun pointed at your head, and the robber says "gimme your money", it may be in you interest to give him your money. But there is no sense in which the robber can say he earned that money, nor should he be allowed to keep it. THERE IS NO POSSIBLE WAY ON EARTH that anybody can EARN or DESERVE that kind of money. It is simply robbery. Someone has dramatically missed the point about this. It will just anger and inflame the public.

  • Comment number 60.

    70p per share is the magic number?

    Come off it.
    My gran's parrot could get the RBS share price up to 70p.
    The share price has not much to do with the shambles the banking sector found itself in and the true value, and has everything to do with who has to invest their money (well your money) somewhere at all costs.

    RBS could reach 70p a share in 6 months without doing anything different, and probably should be at around 50p just now with all that government backing.
    They are hoarding money just now, their balance sheet is improving all the time and all that debt which needn't have been written off is just going to feed back to their benefit in the months to come.

    Plus ca change, plus la meme chose.....
    To them that have, maybe they should have more.......

  • Comment number 61.

    And any bonuses should come into line with other industries (not Planet Greed).
    And bonuses cannot be calculated on one years trading reults, that is too short in banking.
    It takes a few years to know if a bank is succeeding or is on a hiding to nothing.
    Hope the FSA has now got some fangs....and uses them.
    Heavy regulation and civilised bonuses are required....unless they want a national strike.

  • Comment number 62.

    It would be nice, Bobby, if you put together information on the entire content of the package for our benefit; and how it compared to Fred's previous deal.
    I presume Hester has a nice feather-bedded pension and early retirement offer neatly tucked in there somewhere.

    Regards,

  • Comment number 63.

    Leaving aside the fact that everybody in such position is grossely overpaid, this deal, in that context seems quite reasonable and intelligfently thought out.

    If,however, you put it into the context of paying him 50% less and donating the rest to a charitable fund for sustainable food production and education in Africa, all of a sudden it becomes morally abhorrent again to well, pay anybody that kind of money for running an institution!! Invent a way to harness nuclear fusion maybe you can justify such a salary but for running a bank?

    There should be some link between salary and the value you provide to society. We need a grander vision than the current economic model provides for.

  • Comment number 64.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 65.

    The package for Mr Hester has three elements etc., Should that read four elements Robert. Didn't he gain 10.4 million shares on arrival which would also become £7.2 million at 70p/share.

    Other matter too that requires verification :- government paying 65p per share for their bundle.

  • Comment number 66.

    Just under 10 million? Ha ha ha ha! You just have to laugh these days.

    The very few 'at the top' are simply awarding themselves ever more ludicrous amounts of money and there isn't a damn thing (short of revolution I suppose) that the rest of us peasants can do about it.

    Best not to think about it for too long.

  • Comment number 67.

    This is one of those damned if you do or damned if you don't moments.

    One would have thought that the idea was to take the risk out of the Risky Bank of Scotland. This can only be done by bearing down heavily on the bonus culture and separating retail deposits from the gambling.

    At the moment I feel that the bookie might be a safer place to leave my cash. It might still be on the 1530 at Newmarket but if the nag comes in early I might get some profit from the undertaking.

  • Comment number 68.

    49. At 12:19pm on 22 Jun 2009, lukeo1980 wrote:

    If I had money I'd be considering buying shares in RBS... 37.5p per share is quite low isn't it?

    ----------------------------------

    Take out a huge loan with RBS and buy a load of their shares!!!...you can't lose!

  • Comment number 69.

    £8bn profit? How is that worked out then?

    The profit figure I get is MUCH higher -

    13 October 2008 - Government 'invests' £15bn in RBS in ordinary shares at 52.9p each

    13 October - Government loans £5bn to RBS as Preference share with 12.0%pa interest.

    19 Jan 2009 - Govern £5bn loan converted to ordinary shares at 11p each.

    so.....

    at 70p per share -

    £15bn shares at 52.9p grows to £19.8bn, and
    £5bn shares at 11.0p grows to £31.8bn ie.

    A total return of £51.6Bn from a £20bn investment,

    Therefore.... A profit of £31.6bn (not £8bn)


    And #49 Lukeo

    Considering RBS share traded at £6.05 each last August, 37.5p IS cheap - find some money and get on!




  • Comment number 70.

    Perhaps if the banks were actually doing what they received £billions to do, those at the top might be able to justify these amounts of money. Maybe.
    The fact is they aren't. Where have these/our £billions gone?

    I contacted RBS recently about the Chancellors much vaunted Enterprise Finance Guarantee for small businesses and was promised that a Business Relationship Manager would call back. Nobody has bothered to ask what I might want this for, in fact nobody from RBS has even bothered to contact me back at all. Is it up and running? Are they helping small businesses as they promised? I have no idea.

  • Comment number 71.

    Typical moderation.

    Even though every statement I made came from the Times online I suspect my post has been removed because of defamation of character.

    ....even though I haven't received a message as to why yet....

    BBC protecting the honour of RBS employees? - All national institutions sticking together eh?

    Makes me sick.

  • Comment number 72.

    #11 majorroadaheadagain - You appear confused as to what constitutes a socialist.

    If you want something and you pay for it then you are a free market capitalist.

    If you want something, but want me to pay for it then you are either a socialist or a fascist. (I assume that your anticipation of criticism from socialists means that you realise this is unlikely to be regarded as a socialist act).

    A long time ago Mussolini came up with a definition of fascism. Why don´t you look it up and ask yourself whether, what is going on here, fits the Mussolini definition of Fascism.

  • Comment number 73.

    2 things that I think need addressing as the discussion on this "giveaway". Firstly, the use of the term "non-cash bonus" should be consigned to the dustbin. The only "qualified" term that should be used is : "deferred-cash bonus". The use of "non-cash" infers that SH is getting shopping vouchers or air miles , he is not.
    The second relates to the discussion around the whether this kind of sum is appropriate. Which in turn leads onto the subject of Executive remuneration as a whole. I put it to you that 100% of the front line staff have as much chance of being entitled to a 167% bonus (deferred or not) for 2009 performance, as we have of seeing a display by Torville and Dean in Haydes. There will be debate around how much of an impact SH will have IF there is a recovery @ RBS but one thing is certain. If his front line staff do not do a good job at selling RBS products, retaining Good customer relationships (against a tide of poor company PR) and running the required IT systems without significant interruption ..... then he will not succeed.. full stop... end of story. Now take that back to this £2 million (167%) bonus and compare to the ABSOLUTE maximum that front line staff could expect of 15% and any sane man will struggle to justify the package. The front line staff would (I have no doubt) want the opportunity to earn a 167% bonus this year , even with precise and extremely difficult conditions (which I doubt will be included in the executives package).

  • Comment number 74.

    Shouldn't Hestor be charged with making the necessary corrections within his majority English taxpayer owned Bank as a prime facie condition of his renumeration package - to avoid both the 'too big to be allowed to fail' and imprudent lending/ gambling in his Investment Banking arm that contributed so much to the UK Banking Crisis?

    Currently RBS seems too big and monolithic in structure - management are too used to being run by one man based in Scotland, who consequently weilds too much power. Hence his (and formerly, Sir Fred Goodwins) apparent strong bargaining position.

    As RBS is owned by English taxpayers in the majority, perhaps Hestor should be charged with making effective change and economies by moving the worthwhile parts of RBS into of the Bank of England - along with alignment of renumeration packages such as his into alignment with the Civil Service....and current Governor.

  • Comment number 75.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 76.

    I think all the sums discussed and despised earlier on Hester's package assume that the economy is going to get on its bike and start to grow and RBS share price with it. Yet a recent report from Experian talks about a further 350,000 manufacturing jobs to go between now and 2010. Consumer spending is going in one direction - down. House prices have still further to fall. Banks arent lending whoever is in charge. The Government has borrowed our futures, and is in total disarray. Hester is a sideshow - the real question is what can anyone do about what could be a long term decline for the UK from which we will emerge severly weakened. Is that too gloomy, and does anyone see green shoots or know who can sort out the mess....?

  • Comment number 77.

    He should have been paid a small basic (say £100K a year), with a larger package based on shareholder returns over 5 years, with the bonus paid in shares that are not redeemable for a further 5 years to prevent the sort of short termism that killed RBS in the first place.
    As someone involved in asset backed finance I sincerely hope he is good at his job and starts lending again, as I can testify that the number of lenders prepared to take on even good risk business has reduced drastically, and major lenders are profiteering (Santander INCREASED base lending rate by .61% today)

  • Comment number 78.

    It's pretty unbelievable and yet oh so believable at the same time. Jobs for the boys continue. Banks continue to punish consumers for their own mistakes and stupidity.

    Even if he has written in a clause about being a failure the numbers are simply staggering - despite what you say Robert - at a time when so many people are losing not only their jobs but homes as well.

    I would have been far more impressed if he had agreed a nominal salary of say £1,000 per month with a stepped reward scheme of some kind. It is highly unlikely he needs £1.2M a year as he's already made enough money!

    The banks have clearly learned nothing from past mistakes and the government continue to pay lip service to those they serve by being toothless and spineless.

    I am afraid there is no way of 'dressing up' or 'packaging' such a monstrously large remmuneration scheme to the general public which is palatable in any way, shape or form.

    What a sad state of affairs. Being a shareholder myself i.e. a taxpayer who is currently working in order to support the bank which has effectively almost ruined our organisation (a paradox of monumental proportions), I would not support this package if given the opportunity to vote. Oh hold on a minute, I won't get that chance as appararently the government voice does that on my behalf and votes a resounding yes, it's a good idea.

    Roll on the general election so I can cast my 'vote' then.

  • Comment number 79.

    Unfortunately it seems that financial targets alone are to make up the measures that will determine whether Mr Hester gets his monstrous package.

    The real cost in terms of misery, burden on the state, and reduction in quality of work and life for the 10,000's he and his team apparently plan to lay off to achieve these narrow targets seem not to be included.

    So please WAKE UP this week, RBS Board - take the blinkers off, make some effort to think outside the box and set balanced targets including worthwhile non financial ones.
    Surely its a fallacy that simple financial ratio's, and proven volatile indirect measures -such as share price- provide real evidence of good work and investment?

  • Comment number 80.

    Hang around.

    The public is the majority shareholder in RBS and any decision has to be acceptable to them.

    Why are the board still in post, let alone be empowered to make this kind of decision?

    Why is our money being spent on high salaries and bonuses, when it is clear that most bankers aren't worth a light?

  • Comment number 81.


    What was that old saying?...

    'A fair days pay for a fair days work'

    It's certainly good work if you can find it! (geddit?)

  • Comment number 82.

    Good to see the government is being wantonly generous with our money again, and that the banking sector remains utterly venal.

    I'm feeling more and more like one of those sci-fi Human Batteries every day, except I'm hooked up to produce financial gain for my inhuman overlords, not electricity.

    Well, I for one Welcome our New Robot Masters.

  • Comment number 83.

    Where is it all going to end?

    This sort of pay deal is beginning to make National-Lottery jackpots look pathetic!

  • Comment number 84.

    46. At 11:57am on 22 Jun 2009, majorroadaheadagain wrote:
    I said the solicialists would be out in force.

    15 How sick is your comment "Luckily the next leg down will hit sooner rather than later".

    I'm a realist. The next one in 10-20 years would be even worse if we do not sort the problems out now. I hate the way the government are finding scape goats and not addressing the real problems. We need to get the banks re-capitalised (not just by creating a new accounting rule), we need to split retail and investment banks and we need people with longer memories than your own.
    I want capitalism but not at the expense of the taxpayer. I want a government who acknowledges a penalty for failure. A society that takes control of their own behaviour.
    SORT IT OUT NOW.

  • Comment number 85.

    80,

    UKFI are the taxpayers 'spokesperson'. They is doing a grand job lol

  • Comment number 86.

    If Mr Hester was "untarnished" previously, he is now undoubtedly tarnished by accepting such a salary to run this largely taxpayer-funded institution.

    But more importantly, the current government, which is certainly notably tarnished already by failing to rein in the excesses of financial "innovations" over more than a decade, is further tarnished by allowing such ludicrous rewards for a bank which has been kept afloat by taxpayers money. How spineless are they to not be able to clamp down on such obscene greed even when public opinion is so massively and justifiably behind them on this issue?

    It is imperative to pressure the Labour government into stating what it stands for - because it looks as if it stands for allowing the gravy train to merrily career onwards as usual. I'm no friend of the Tories but evidently Brown has just given up now, and events like this merely consign his party to an even more humiliating defeat at the next election.

    This ridiculous salary award just perpetuates the self-deceiving psychology of apparent omnipotence that characterises top management - "I'm paid stratospherically more than my employees therefore I must be incomparably more capable than they are." The elevation of mere mortals to demigod-status then enables them to dazzle us with yet more of the "smoke and mirrors" economics which has damaged us so badly.

    I genuinely hope the financial sector will gradually lose its importance to our economy so that the skills of the undoubtedly bright and able people (in many cases, not all) who would have been attracted to it in the past will be diverted into areas that are far more productive in the long term, such as technology, science, medicine, culture and education etc - but we must push governments hard to maintain the political will to make this happen.

  • Comment number 87.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 88.

    As shareholders, how come we taxpayers had a say in this agreement?

  • Comment number 89.

    34. At 11:16am on 22 Jun 2009, windchrisleeds wrote:


    "There was a chance that Robert and many others were going to run out of people to discuss just because they earn a big salary."

    You know, if you take huge amounts out of the equation to pay the CEO and/or other Directors of a company, you a) often don't end up with a particularly good CEO and/or board (i.e. ones that are beneficial to the company in the middle and longer term) and b) you stop that money being used for other things that might better benefit the company's trade, reputation, efficiency, effectiveness, customer services, etc., etc.

    It's this Anglo-American thing again, isn't it? There's only two measures of how 'good' a company it and they are its short-term profit and its share price.

  • Comment number 90.

    "Personally I'd do the job for 250,000 a year with a 1,000,000 reward if the target was achieved. I'd feel richly rewarded and happily step down if I failed to achieve this with no pay off."

    You should probably send your CV to RBS then. I'm sure they'll be glad to have it.

  • Comment number 91.

    ermmmm...is this a joke story? this must be a wind up.

    guess if you get bailed out you learn nothing and just carry on as you were. hand's up who saw this one coming lol

  • Comment number 92.

    84. At 2:24pm on 22 Jun 2009, eatingantonyo wrote:

    "I want capitalism but not at the expense of the taxpayer. I want a government who acknowledges a penalty for failure. A society that takes control of their own behaviour.
    SORT IT OUT NOW."

    Sorry, no-one is going to do that. Those who you perceive to have either the ability or power to do that have assorted 'vested interests' to permit the status quo to continue. Those range from MPs who know they won't get re-elected and might want a 'favour' or two from friends and connections in business, to pension fund managers who want to report a halfway decent profit on their funds' investments adn thereby attract more business.

    In the immortal words of Private James Frazier, "We're all doomed".

  • Comment number 93.

    Look people, it's no surprise. It should be no surprise that MP's expenses will also be a fudge. It should be no surprise that industry will not be supported. Imports will continue to increase, Immigration will continue to increase, Volitility in the markets will increase, Private secotr pensions will proably disappear, public sector pensions increase and fat cat wages increase.

    Either you want to live in a hell hole or not - make sure on election date you vote for someone who has the policies to sort this mess out. If you are unsure then dont vote for any of the major parties - you'll just get the same situation as now. Voting for many independants will, if nothing else, ensure that nothing major can be done without cross party concensus.

  • Comment number 94.

    Robert, Your arguements are, as ever, cogent and reasonable and the numbers involved are huge in the eyes of most people. Sufficient at least to give them something to moan about. That said, if Mr Hester can sort out RBS in 5 years and get the taxpayers money back I would happily sanction five times this sum and think it cheap at the price. It took BP over 70 years to finally divest itself of the dead hand of government so good luck Steve say!!!!

  • Comment number 95.

    55. Wee-Scamp:

    "Actually the real problem I have is that I just don't believe that running a bank is a particularly difficult thing to do and that it doesn't take anyone special to do it."

    Probably true, but it takes real genius to run one into the ground like the heroes of NR, HBoS and RBS...

  • Comment number 96.

    Eatingantonyo (84)

    Thanks for the clarification. You say we need people with longer memories than me. Sadly, I was around when Chamberlain was Prime Minister, and we had a clear separation between retail and investment banking - indeed few of us knew that the latter existed, and certainly did not see anything of it when we were talking to our local Mr Mainwaring who ran Lloyds. "Ordinary" folks had "POSBIES" which paid 2.5% per annum for donkeys years. The trouble with modern banking and finance (probably this time round with a genesis in the 80s and things like LBOs) is that it has become wide open to the Madoffs of the world and although fraud has always been around it has never been so easy.

    In the end you have to blame the Government (both here and in the US) who failed to do what it says on the tin. They didnt govern banking, and thus had to pump billions of our money in to save face. It bore no relation to prudence, which was Brown's mantra for his ten years as Chancellor. Incidentally, while we can control our own behaviour what can we do about things that we dont like other than blog? Vote once every five years? Be sold a pup of a Manifesto that didnt do what it said it would? Get an unelected Prime Minister and a 2nd In Command who most people seem to dislike? Get MPs who are largely distrusted?

    Your final comment was SORT IT OUT NOW. Mine is HOW?

  • Comment number 97.

    Unfortunately, it seems that the Government hasnt learnt and are still dazzled by Bankers. It is clear that Bankers have felt that they were individually worth the money they were being paid, and still do. It's the same ethos as MP's which is why they thought they were ok to strip the bark off the expenses tree - because they thought they were worth it.

    A large organisation like RBS is relatively autonomous in terms of systems and processes. As long as you dont take a gamble it will generate its own income and recover its share price, given normal management activity and normal management checks and balances. There is no way that this chap will make 10 million quids worth of difference. He just has to keep his hand on the tiller and follow the direction of the wind and he will pick up the big bucks. For doing what most senior managers do in non-banking industries for far less reward he will think, because the chips are bigger, that he is something special and "worth" the money.
    Get someone in from a different industry, pay them 30% of what he is being paid and you will get the same result.

  • Comment number 98.

    NO! NO! - not again - who are these clowns?
    Nobody is worth that sort of money - it is madness!

  • Comment number 99.

    One thing that surprises and concerns me is that so much of this package is linked to share price. Whilst this may seem an obvious way to ensure a return to the owners/taxpayer, it is surely one of the discredited features of banking over the last 5 years, and one of the features that encouraged the behaviours that we now see as unacceptable. So this is like starting the same old racket with different personnel. Senior bankers with their bonuses tied to share price will go to any lengths to achieve the right share price at the key moment(s). This will over-ride other good banking practices (or what I thought we'd spent the last few months deciding were good banking practices). It certainly doesn't encourge long term and sustainable management.

    So it appears that we've learnt very little, yet we continue to hound Goodwin for being very good at playing the same game in a previous season.

  • Comment number 100.

    Turning on the radio or television to (so-called) business news will engender information about the activity (or reaction to events or information) of the (so-called) market. Almost always, this refers to the financial or commodity markets. More precisely, it concerns, almost entirely, the secondary financial or commodity markets, because only a minuscule proportion of this market activity is concerned with the creation of new capital or commodities.

    Thus, ironically, public attention is focused almost entirely upon the only category of market transactions which creates no new assets, no material production and no public or private services. Instead, it trades only in the symbols of the real economic production, by the exchange of monetary instruments of ownership, in a search for the enrichment of those who wager on the future values of these symbols. Since this market creates no real resources, participants can only become rich at other peoples expense, including (but not exclusively) other participants in the market. Thus, participants include commission-seeking brokers, litigious lawyers, tax-gimmicky accountants, merger manipulators, greenmailers, junk-bond dealers, advisers and other unproductive rent-seekers of all kinds. All are, effectively, gamblers. These are the chrematists.

    The goal of an economics-in-community is as much to provide meaningful and satisfying work as to provide adequate and quality goods and services. Yet the markets for goods and services is rarely emphasized and the market for labor is highlighted only to the extent that an increase in employment (reduction in unemployment) might threaten the values of the wealth-tokens of the chrematists! [From Adams Myth Economics, a David C. Jones slideshow!]

 

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