RBS chief Stephen Hester's £963,000 bonus criticised

 
RBS boss Stephen Hester Stephen Hester's bonus is on top of his £1.2m basic salary

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A £963,000 bonus in shares awarded to Royal Bank of Scotland boss Stephen Hester has been strongly criticised.

The Labour leader, Ed Miliband, said the payout represented a "disgraceful failure of leadership by the Prime Minister".

But the Chancellor, George Osborne, said the previous Labour government was responsible as it had forged the contract that included a bonus clause.

Lib Dem minister Jeremy Browne said Mr Hester should turn down the bonus.

RBS is 82%-owned by UK taxpayers and the body that oversees the government's stake said the bonus reflected Mr Hester's work "towards rebuilding RBS".

UK Financial Investments said the bonus, which is on top of Mr Hester's £1.2m salary, "reflects the significant contribution he has made towards rebuilding RBS in 2011".

A spokesman for Prime Minister David Cameron said he had not been involved in the decision.

The Conservative Mayor of London, Boris Johnson, said "the government should step in and sort it out" as RBS was "not a normal bank" and there "should be a concept of public service and duty to the wider British public".

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I am reliably told that they feared Mr Hester and much of the board would have quit, if the payment had been vetoed by the government as the majority shareholder”

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Our business editor, Robert Peston, said the government paid the bonus as there was a real risk that Mr Hester and the rest of the board would leave their posts.

Dr Ruth Bender, from the Cranfield School of Management, insisted Mr Hester's bonus was reasonable.

"We need to pay him that bonus because we can't afford for him to leave and a million pounds isn't very much to pay to retain him in a very demanding job which everybody says he's doing very well," she said.

Job cuts

Following the announcement of Mr Hester's bonus, UKFI said: "As the largest shareholder in RBS, we have worked closely with the board to ensure that pay is aligned with the interests of shareholders and properly rewards long-term performance.

"Stephen Hester's pay reflects the significant contribution he has made towards rebuilding RBS in 2011."

Analysis

Obviously, Stephen Hester will have to pay tax on his £963,000 bonus from RBS, but how much?

The bonus is in shares, but it is still liable for income tax, payable when the shares are handed over in 2013 and 2014.

My understanding from RBS is that Hester is likely to have to pay 52% tax on the value at that time, made up of 50% income tax and 2% National Insurance.

Assuming the value will still be around £963,000, the tax charge will be £500,760.

He has to hold on to the shares for a period. Then, if he sells them, he is liable for Capital Gains Tax on any gain in value since the shares were handed over.

The CGT rate would be 28%.

For the past two years, part-nationalised RBS and Lloyds Banking Group have paid no cash bonuses of more than £2,000.

RBS has announced thousands of job cuts, although it recorded a £2bn profit in its most recent trading quarter, compared with a £1.6bn loss in the same period in 2010.

David Fleming, the Unite union national officer, said: "How can a Royal Bank of Scotland senior banker who is responsible for sacking over 21,000 workers be rewarded in this way?", while the TUC described it as "utterly unacceptable".

Foreign Office minister Mr Browne told the BBC's Question Time: "There's a question of honour. Even if there's a contractual opportunity for him to have a bonus it doesn't mean he has to accept it."

Mr Browne said Mr Hester was paid more in three days than a soldier serving in Afghanistan received in a year.

"He should reflect on that. He is effectively a public servant in a bank which is almost completely owned by us the taxpayers," he said.

"He needs to think like a public servant who has a duty to his country, not just his own wealth."

Asked if he should turn down the bonus, the minister said: "No-one's forcing him to take this money. He could struggle on with £1.2m."

George Osborne: "The arrangements for paying the bonus were determined by the contract he signed"

Following a speech on "moral" capitalism last week, David Cameron was asked whether he would act to stop the bosses of state-owned banks receiving £1m bonuses.

He replied: "The short answer is yes."

Last year, Mr Hester received a bonus of more than £2m and the prime minister said: "If there is a bonus [this year], it will be a lot less than it was last year."

Deputy Prime Minister Nick Clegg has said ministers are "constrained" by contractual arrangements agreed by the last government at the time of Mr Hester's appointment regarding his bonus.

Shareholder power

Matthew Sinclair, from campaign group the Taxpayers' Alliance, told the BBC the government should block any bonuses for Mr Hester until the taxpayers' investment in RBS is repaid.

"It's incredible that we're seeing a huge bonus which should be reflecting performance in the interest of shareholders and that's you and me," he said.

On Monday, Business Secretary Vince Cable announced a series of measures designed to rein in excessive executive pay.

They included more power for shareholders to veto salary and redundancy packages, and encouragement for firms to increase diversity on their boards.

Labour said the proposals did not go nearly far enough, and should have included steps like including ordinary employees on remuneration boards.

Dr Ruth Bender, Cranfield School of Management: Hester package "reasonable"

A Conservative Party spokesman said Labour had failed to do anything to curb multimillion-pound bonuses during their time in government.

"It would clearly have been unacceptable for Stephen Hester's bonus to have been the same as last year. So we are pleased it is less than half of that this year," he said.

But TUC leader Brendan Barber said the bonus was "a very bad decision", especially at a time of public sector pay restraint.

"To be told that a banker supposed to be working for the public service is to be made an exception with this huge increase, it's utterly unacceptable."

 

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  • rate this
    -5

    Comment number 1390.

    I think 1/2000 bonus is pretty low return for a bonus based on profit, if you look at my boss, we made £50,000 profit last year, our manager gets £45,000 a year wage, so a wage of nearly 100% profit, so how can we moan at a 1/2000 bonus, its just jealous people, he is in the big fish league so he gets paid as a big fish, seems fair to me.

  • rate this
    +3

    Comment number 1389.

    1361 @ MKMAT

    Company efficiency can come in many ways. Let us say, by not capitulating to excessive wage demands!

  • rate this
    +3

    Comment number 1388.

    1339.Phil T
    ...His bonus is paid in shares if the company does well he gains so it's in his best interest to make the company perform well.

    True - but if his bonus is paid in shares then then he will not pay any tax on them like he would if it was paid in cash.

  • rate this
    +4

    Comment number 1387.

    Get real! No one deserves such a pay out. People risk their lives on a daily basis for their work, e.g armed forces. Some even risk their lives in a voluntary capacity, lifeboat rescue etc. They are the people that deserve a pay out! He already gets paid more than enough. What is he going to do with the money?

  • rate this
    +4

    Comment number 1386.

    1308....you make a good point but im not sure what an ethical bank is any more?!

    it might not invest "directly" in arms etc BUT how are they leveraged? how much DEBT are they carrying on their books? i doubt they have the cash or gold to cover everyone's investments or even 50% come to that.

    Try a a local credit union or GET GOLD / SILVER or even better LAND and grow something you can eat on it

  • rate this
    +3

    Comment number 1385.

    "Doitdoug
    Is this any more obscene than Harry Redknapp apparently getting £160k for selling on a player to another club? Why not the furure there?"

    There is a forore over Redknapp: he has been charged with withholding taxes on the alleged payment.

  • rate this
    0

    Comment number 1384.

    1335. Rob Speakman
    1 MINUTE AGO
    Fair play to him.

    He's turned round RBS from the brink of collapse to profitability. RBS generated £2 billion in profits last year.

    The guy's leadership has generated 2000x more than he's taken out.
    ---
    you are making a massive assumption there - that someone else couldn't have done that job for a fraction of what Hester received.

  • rate this
    +2

    Comment number 1383.

    Yet another example of Prime Ministerial, Governmental and Civil Service
    failure to confront and say ' NO MORE' So what if Hester and his team leave, this bluff must be called. Who else would employ them--they are all part of the incompetent culture that caused the RBS crisis.
    'Off with their heads'

    Graeme Walker

  • rate this
    0

    Comment number 1382.

    I'm in favour of giving him more. Afte all: he'll be needing a fair bit to even stand a chance of buying back his soul. . .

  • rate this
    +3

    Comment number 1381.

    In France there would be revolution. In UK the majority will just bow down in subservience. Here`s a flag, have a wave, salute the queen, we will win some medals at the olympic games (Meanwhile the bankers will be sailing around the carribean on theìr yachts, gulping champers & laughing). In the UK you are a subject, not even a citizen. The positives are, ordinary folk are nice & pubs are good

  • rate this
    -2

    Comment number 1380.

    Banks and businesses do not exist to serve the people or to provide a public service, they exist to generate profit for their shareholders (owners). In this case, the government are shareholders in a private company and as such, they are free to sell their holding at any time. If you don't like these facts perhaps you should consider a move to Cuba where you can experience socialism first hand.

  • rate this
    +1

    Comment number 1379.

    Banks are having a laugh with customers and business and the economy is suffering. They should be in regulation strait jackets, with statutory limits on pay, minimum savings rates and max mortgage rates (linked to base rates), legal targets for lending to small businesses and entreprenuers. Lending to separate investment banks should be allowed but at rates that reflect the high risks.

  • Comment number 1378.

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

  • rate this
    +5

    Comment number 1377.

    The Government has tried its best to demonise public service workers in order to take the attention away from their friends in the banking industry. Us Public Servants strike for one day and we are treated like criminals by the government - this lot threaten to leave and get what they want! I am not questioning whether they deserve it, I am just questioning the goverments double standards.

  • Comment number 1376.

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

  • rate this
    +4

    Comment number 1375.

    If this guy is doing such a good job then how come their shares are still dog sh*t ???

    Beggars belief !

  • rate this
    +1

    Comment number 1374.

    Banks have to pay huge salaries and bonuses to get the best Chief Exec because otherwise they'd go elsewhere. Councils don't have to pay huge salaries and bonuses to get the best Chief Execs because, well, who cares who runs our councils? We want them to fail so council services can be privatised and....wait for it ....pay the salaries necessary to get the best people to do the job. Sweet.

  • rate this
    +5

    Comment number 1373.

    Bonuses are fair as long as all employees can achieve them. How many clerks in the bank's branches get an 80% annual bonus? I've been in the same situation at previous jobs. A pleb can get say a 25% bonus if they exceed all their targets, but a senior manager can get 100%+. How is that fair?

  • rate this
    0

    Comment number 1372.

    One huge corrupt conspiracy. We've got ex-bankers in the treasuary approving these salaries and politicians sitting idly by, but wait, Hester did once chair the Tory Reform Group!

    One huge ball of conflict of interest.

    Politics and business need to be made mutually exclusive. If you do politics you cant do business and vice versa. There's no end to this knee tickling.

  • rate this
    +1

    Comment number 1371.

    Re 1267 - Neither did Hester I believe, he was brought in after the "snivelling to the taxpayer"
    The reckless lending of the banks was fully matched by the greed of those who borrowed more than they could afford, and by companies who simply didn't have a workable business plan (other than borrow more).

 

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