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
    -2

    Comment number 1630.

    Easy to have a go at all of this.

    Bottom line.
    Would you want this job ?
    Could you stand the hours ?
    Are you intelligent enough to do this job ?
    Then why are you not in that job ?
    Yes then you could get a job worth more than Hester is getting.
    Can you stand the stress ?
    Yes you are worth it then. No then you do not get the lolly.
    If Hester goes which of you could take his job & do it ?
    Laurie

  • rate this
    -2

    Comment number 1629.

    Will you Poms stop whingeing, how much do you pay a football player?
    And which is the more important?

  • rate this
    0

    Comment number 1628.

    While he may well have a demanding and difficult job, that he has apparently done very well at (which I have no reason to question), it's one thing getting a large salary and a huge bonus when a company is doing well. RBS may be have done well this year, but as it still owes government money, I'd say as a whole it's still doing badly and thus such bonuses are not acceptable.

  • rate this
    0

    Comment number 1627.

    Should RBS employ and reward top Execs to return it to profitable health and repay the debt to the UK quickly, or hire people who accept lower salaries, no bonuses and who would be far less able to return RBS to profitable health (if at all), delaying repayment?

    If it was so easy to run RBS, there would be 1,000's queueing up, and salaries / bonuses would be a lot lower (supply and demand).

  • rate this
    -1

    Comment number 1626.

    I can't believe i'm saying this, but; If he could get paid more elsewhere, but he's grown the business and is getting paid in shares, surely that's worth something in making sure he continues to be successful for us?
    If we just get in some no-mark who'll take the pay, reduce the share price and leave RBS in a worse position, surely thats worse?
    Banker-bashing has blinded us all into not thinking

  • rate this
    +1

    Comment number 1625.

    I am sick of hearing only a few people can do his job.... absolute nonense
    this is a myth perpetrated by the likes of Dr Bender above and her like from other business schools plus the institute of directors. They of all people should know that the reward for risk is profit and the reward for work is wages...... this man isnt risking anything so why do they keep getting the wages plus the profit.

  • rate this
    0

    Comment number 1624.

    By accepting this bonus on top of his £1.2 million salary Stephen Hester demonstartes that he is solely motivated by money. If he had a shred of decency, bearing in mind RBS is majority public owned, he would refuse to accept it. He must have his work cut out spending his salary, why does he need another £963,000?

  • rate this
    0

    Comment number 1623.

    Boris Johnson finds it bewildering. Boris finds it bewildering when he inspects his dirty socks.
    But for Stephen Hester to be paid this bonus is beyond belief. Don't forget because he is a banker he has been on this type of salary and bonus for 20 odd years and is a multi millionaire. When you are so used to it you forget what greed is and just continue to trough it. One day he will get it.

  • rate this
    +2

    Comment number 1622.

    I have been following RBS in the market and had shares and wow this is reward for failure as RBS is now a bigger basket case than when SH took over with still mega expsure to commercial property and soverign debt. It badly needs to be brocken up into all its main components so that we can have some badly needed competion in the financial banking sector, as does Lloyds TSB.

  • rate this
    0

    Comment number 1621.

    Split his responsibilities between 20 highly qualified, educated and intelligent people and pay them £100,000 each per year. Are you seriously telling me that they wouldn't be able to do a better job?

  • rate this
    -1

    Comment number 1620.

    Let him leave as fast as possible. There are thousands of unemployed executives more than capable of running RBS better and for considerably less. I don't understand banker's salaries there should be a limit of around £500000 for this kind of job. What's so difficult about it?

  • rate this
    0

    Comment number 1619.

    Prof Stefano Harney summed up concisely on BBC Breakfast this morning what no politician is willing to admit - nothing has changed and the bonus culture that ruined the economy is still in place and the only policy of those created the mess in the first place and still receive these wholly unjust rewards is to sack the people at the bottom who had nothing to do with the senior bankers failure

  • rate this
    0

    Comment number 1618.

    The real question is 'Is this guy worth it' ?. Does his specialist knowledge and skills mean he can turn the company around and pay back the money owed to the tax payer ?. If all he does is shake hands and attempt to look pretty and has no banking qualifications as with FG then NO. But on the other hand if he is doing a difficult job not many people can do then YES, well worth every penny.

  • rate this
    +1

    Comment number 1617.

    We taxpayers are the owners of this company. It is perfectly within our rights to determine what we are willing to pay our employees. Unfortuantely, you get what you pay for. Already only those with no other option end up at RBS. By cutting pay, we are simply eroding the value of the billions that we have all invested in this "bank". Ranting about this bonus is counterproductive to all of us.

  • rate this
    +1

    Comment number 1616.

    1412.
    Few people are capable of undertaking a job at this level & make a success of it.
    Is he successful-where's the evidence?

    To attract & retain such people in our highly prescious banking industry we need to be seen as a centre of excellence that rewards to a global standard
    This could be said of engineering, teaching, scientific posts etc yet somehow the rewards aren't so great.

  • rate this
    -2

    Comment number 1615.

    @1561
    Public sector pay awards in local government
    2014 - 2015 1%
    2013 - 2014 1 %
    2012 - 2013 nil %
    2011 -2012 nil %
    2010 - 2011 nil %
    2009 - 2010 nil %
    2008 - 2009 1%
    Sort of goes against your post really, as for pensions i personnally don't pay into it as i can't afford to like many others so that sort of goes against your post too!!

  • rate this
    +1

    Comment number 1614.

    You have to admire the arrogance and total lack of humility displayed by these latter day Marie Antoinettes. Unfortunately, there will be no revolution because despite austerity we've never had it so good.

    "Fancy an uprising dear?"

    "Not right now pet, I've got a shepherd's pie in the oven and Corrie's on in 20 minutes".

    Historians will look back at us amazed that we let this happen.

  • rate this
    0

    Comment number 1613.

    Does not reflect the amount of intrest we get in our Bank accounts, maybe there Bonus based on the % intrest in a current account, nothing.

  • rate this
    +1

    Comment number 1612.

    Don't forget, we will be paying his bonus, it comes out of TAX PAYER money.
    John Hourican, head of RBS's investment arm will also receive up to £4m
    If you bank with RBS - shut down your account, switch to the Co-op - I have.

  • rate this
    +1

    Comment number 1611.

    A commentator on Radio 4 this morning said - with no hint of irony - that Hester deserved the money because laying off 21,000 staff was a very stressful job. Bless.

 

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