What is ‘appropriate’ pay at RBS?

 
RBS branch

Royal Bank of Scotland's shares have slumped more than 40% over the past year - so that taxpayers currently face losses of around £23bn on their 81% stake in the bank.

RBS has shed many thousands of jobs in that period. Also it recently announced that its investment bank was performing worse than it hoped, so RBS is abandoning share trading and advising companies on takeovers - and a further 3,500 jobs will go.

As for lending to small business, RBS has to date marginally missed the so-called "stretch" targets it agreed with the government under the Project Merlin agreement - and like all the big banks, it stands accused of not doing enough to support smaller or younger companies that represent the UK's economic future.

So it is unsurprising that much of the media - and many of you in the comments you leave here and on Twitter - say that it would be little short of a scandal if the bank's senior executives were to receive big pay awards when bonuses and longer-term performance rewards are decided early next month.

What are the potential rewards for those who run RBS?

On the basis of RBS's current share price, the remuneration of the chief executive, Stephen Hester, could be a bit over £7m for 2011, if he were awarded his maximum bonus and long-term investment plan allocation.

It would be slightly odd if he received his maximum entitlement. But my understanding is that RBS's non-executives feel he does deserve a fair sized bonus.

Then there is John Hourican, who stands to receive shares worth over £5m that were allocated to him - subject to performance conditions - when he took charge of the investment bank three years ago. They will come on top of his earnings for the past year, and it would be highly surprising if they weren't millions of pounds.

Also RBS's chairman Sir Philip Hampton will receive shares worth just over £1m if the bank's remuneration committee deems that he has "led the successful and sustainable rebuilding of the group".

What's more, plenty of investment bankers at RBS will receive rewards running to several million pounds.

Because the investment bank has performed worse than in the previous year - as is typical of the industry - those rewards may halve. But pay of £3m or £4m still looks a huge amount of money, when millions of British people are enduring what's widely seen as the toughest squeeze on living standards since reliable records first became available (so for at least 60 years).

Today's Daily Mail asks of RBS: "How, in the name of decency, can a publicly-owned bank be allowed to behave like this?" The Mail isn't the first and won't be the last newspaper to express outrage at what bankers will pocket in the coming bonus round.

The contrast with the view on the board and among many big shareholders could not be greater. They see a management team struggling to fix a huge and complex organisation, whose flaws were created by a previous team of executives, in a terrible financial climate not of RBS's making.

Their view would be that RBS is a much stronger bank than it was. And if that is not yet reflected in profits and share price, it is the inclement external environment that's to blame.

For example, they would say that the collapse in the bank's share price is largely due to the eurozone crisis, which has whacked the shares of all banks.

And if RBS has not provided all the credit it could have done to smaller businesses, that may reflect its position as far and away the biggest small-business bank: if many small businesses currently lack the confidence to invest (which surveys suggest is the case), RBS finds it hardest to disguise that trend.

For almost all the negatives about the bank perceived from the outside, the bank's non-executives and a good number of its biggest investors would point to extenuating factors.

They would argue that it's only fair that RBS's chief executive, chairman and investment-banking boss should be "appropriately" rewarded for successes in putting the bank on firmer foundations.

The problem is that there is a world of difference between what is deemed to be an appropriate reward at the top of big companies - and not just banks - and what many of you would see as appropriate.

Quite how views on pay from inside not just this bank but any bank can be reconciled with outside views completely defeats me.

As one senior banker said to me, it's bankers' pay that more than anything else prevents banks from restoring their public reputations - but he didn't have the faintest notion how to align remuneration with what would be widely seen as decent, and thus mend the poisonous relationship between finance and people.

 
Robert Peston Article written by Robert Peston Robert Peston Economics editor

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  • rate this
    0

    Comment number 23.

    @20.BluesBerry
    Pay them what the law mandates in accordance with their contracts of employment/service. Court fights will only add cost.

    -----
    That is the problem. The bonuses are in the contracts, so not paying them risks the court cases.

  • rate this
    0

    Comment number 22.

    put "bank miss selling" into Google - 3,320,000 hits. Jail time served - nil. "Poisonous relationship between finance and people" - you bet there is. Crooked, greedy, grasping, selfish, lying, untrustworthy,......................
    The majority of people would not even spit on them if they were on fire

  • rate this
    0

    Comment number 21.

    It is strange that the same sort of people are still in control not only of the banks but major companies, and dispite larger than life profiles not one of them saw this coming. We as small shareholders have no control over the boards of these banks. This all started with that american guy brought into run BOC back in the 80's got a few friends together to form a pay committee & here we are today

  • rate this
    +1

    Comment number 20.

    Shameful RBS missed "stretch" targets under Project Merlin.
    I add my voice to those that say: it would be scandalous if bank's senior executives were to receive bonuses or longer-term performance rewards. Pay them what the law mandates in accordance with their contracts of employment/service. Court fights will only add cost.

  • rate this
    +1

    Comment number 19.

    If they worked at a stationery company, they'd probably get free pens.

    Shop workers often get staff discounts.

    Is it so terrible that bankers get to take all the money home with them?

  • rate this
    0

    Comment number 18.

    If bonuses are taxed at 50% then as a taxpayer I'm not overly bothered - I am better off than if the company was only taxed at the rate of corporation tax on the same amount.

    However, I am mystified as to why shareholders aren't bothered. When results are so bad, they would have been better off with results from the monkeys that they would have employed had they only paid peanuts?

  • rate this
    0

    Comment number 17.

    How about those due to receive a bonus taking Ed Millibands message to heart and helping to save some of the 3,500 due to be sacrificed? As a shareholder I would prefer to see this happen.

  • rate this
    0

    Comment number 16.

    The owners of RBS have to decide what kind of bank they want as there is still a demand especially for good traders and still banks willing to pay stupid bonuses. Whilst RBS can stop many bonuses it is unlikely it could continue operating without people like currency traders and as long as other people pay big bonuses so will RBS.

  • rate this
    +2

    Comment number 15.

    Bonuses are part of the tradition at these banks! So what does it matter if the bank has made losses on the taxpayers' bailout funds or eased some tens of thousands of low wage employees?

    For those, losing their jobs and pensions and lifetime savings to the greed and avarice of the top unscrupolous brass, disbursement of bonuses is scandalous and callous - an unpardonable sin!

  • rate this
    0

    Comment number 14.

    > Hestor 7m, Hourican 5m, Hampton 1m, investment bankers ...

    There's a public sector freeze – the cronies will have to sing for it.

    > how to align remuneration with what would be widely seen as decent

    Greedy bankers had a huge sense of entitlement, but the public know - it was money for old rope.

    > restoring their public reputations

    They have foul reputations because they are greedy.

  • rate this
    0

    Comment number 13.

    Dont recommend the senior management are seen on the streets of Doncaster. Is Miliband going say something aggressive (sorry I mean tough) about this looming scandal. Its an opportunity for being forthright about a nationalised bank putting two fingers up to pay policy and the government. Demand that Osborne and King intervene to show who is boss!

  • rate this
    0

    Comment number 12.

    Lots going wrong over at RBS
    - shares slumping
    - taxpayers losing
    - jobs shedding
    But here's the thing: CEO Stephen Hester & other bosses could be working like dogs right now trying to salvage what they can...OR NOT.
    Pay them what's mandated on their contracts of employment.

  • rate this
    +1

    Comment number 11.

    My heart goes out to these poor people having to do such a difficult job.
    Earth to bankers.....

  • rate this
    0

    Comment number 10.

    "RBS has to date marginally missed the so-called "stretch" targets..."

    Hardly fair to criticise on those grounds.

    "...many of you in the comments you leave here..."

    Are you reading this? Do you contribute, Rob? Are you WOTW?

    I have to agree with 5.bigmouth strikes again. I feel queasy.

  • rate this
    0

    Comment number 9.

    "For almost all the negatives about the bank perceived from the outside, the bank's non-executives and a good number of its biggest investors would point to extenuating factors."

    --- Partly pregnant ?

  • rate this
    0

    Comment number 8.

    When will bankers stop trying to tell us they are worth this money because they are "talented"? They have a talent, it is to lose a lot of thew owners' money!. On that basis they have not just not earned a bonus, they have not earned the right to continued employment.

  • rate this
    -2

    Comment number 7.

    The whole question is a red herring, part of divide and rule so that us taxpayers are distracted form the parlous state of the world financial industry.

    Where are the articles about the economic skirmishes (I will not call it economic war as yet, except Iran) that have a real effect on us all? Not on this website.

  • rate this
    -3

    Comment number 6.

    Too much is made of what other people get or don't get paid.

    Greed and envy go hand-in-hand.

  • rate this
    +2

    Comment number 5.

    'What is ‘appropriate’ pay at RBS?'

    Buttons?

  • rate this
    0

    Comment number 4.

    When RBS stated their 2010 results they transfered more than £4 bln pounds in losses from their investment banking side to a "non-core" division. They then announced a profit in their investment banking side of more than £5 bln, justifing a bonus pool of £1.2 bln

    The actual profit was £1 bln, less than the bonus pool

    Is this a management team trying to fix a broken corporate culture?

 

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