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 1650.

    1412.carl c
    True but who says he is that capable - look at his history, did well at British land by failing to see the signs of the commercial property slump, failed to make much impact when appointed to Northern Rock and failed to stop the slide in share price of RBS - is this your idea of excellence? HMMMM.

  • rate this
    +1

    Comment number 1649.

    Also his market is competitive as is his talent. He can go elsewhere. He has done well so far. He has to fight with his board and fight on the market not easy. Comparing him to most people in Britain is wrong. MP's etc whose comments are just grovelling to the masses. Oh wish they were of such callebre and delivered results. We need 50 well paid MP's to run a little country like UK not 635 waste

  • rate this
    +6

    Comment number 1648.

    He is doing what he is paid to do. Why the bonus? I certainly don't recieve a bonus (AT ALL) let alone one almost equal to my salary for doing what I was employed to do. SHAMEFUL!

  • rate this
    +1

    Comment number 1647.

    I don't get it. This man has come into a wrecked company and made significant steps to rebuild it and you don't think he should be rewarded.
    The privatised rail companies got government compensation to cover reduced revenue in the recession. The companies still paid big dividends. The likes of Richard Branson received millions, and he probably didn't pay tax on it. No one moans about that.

  • Comment number 1646.

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

  • rate this
    0

    Comment number 1645.

    If you think you can do the job , go and get educated and apply for a financial services job and work your way up the ranks. As you do so you can refuse 70% of your salary and reject any bonuses.

    As if that is going to happen.....

  • rate this
    +7

    Comment number 1644.

    I don't understand how anyone can say that they NEED £1.2m to stay in a post. I don't care how stressful or difficult the position is or how much all the other bankers in the world are earning - how is this acceptable in this day and age? It's a job!!! Yes he should be earning a good salary, but this is excessive by any standard.

  • rate this
    +13

    Comment number 1643.

    carl c
    Do you really believe that in a country with a population of 60 million there are "very very few" capable of doing this job? You seem to have fallen for the "spin" of those whose vested interests are served by promoting such a myth

  • rate this
    -1

    Comment number 1642.

    This was a no-win situation for both RBS and the Government. Of course boardroom pay has got out of line in the UK and elsewhere, as have many other reward packages in the Finance sector. However, to achieve a turnaround at RBS and get most if not all of the taxpayers' money back will require long term commitment by a top class team.

  • rate this
    +3

    Comment number 1641.

    "All animals are equal except some are more equal than others." George Orwell ~ Animal Farm.

  • rate this
    +5

    Comment number 1640.

    Ed Miliband really is as incompetent as he is uncharismatic. First trying to lambaste the PM for the Northern Rock deal, a mess the labour government created, and now this. Does he realise only a couple of years ago it was his party who agreed the terms and structure of Stephen Hester's salary and bonuses. He thinks we the public have a goldfish-like memory and he can hoodwink us. It's pathetic

  • rate this
    +4

    Comment number 1639.

    Re top rated 107
    "What I find infuriating is that, working in the NHS at ordinary staff levels.........
    The people at the top get their bonus because of their "valuable" contribution. Who decides, guess what, they do.
    Where's my £963,000?

    I think you'll find it (and more) is in the pension pot of each and every doctor in the NHS when they retire.

  • rate this
    -4

    Comment number 1638.

    This is how irreplaceable this man is (You too can try this at home):-

    1 Take a empty bowl and place it under the tap
    2 Switch tap on and fill bowl nearly to top with water
    3 Place hand in water for 30 seconds
    4 Remove hand & the hole left in water is how irreplacable this man is

    easy - do TRY this at home

  • rate this
    +1

    Comment number 1637.

    If these people walked so what? The graveyards are full of indespenible people and there is always someone to take their place.

    I'd do the the job for a 10th of what these people get as would others.

    All this BS about "paying for the right people" is exactly that. In fact the people at the sharp end are the ones who actually do the work and keep the business going.

  • rate this
    +1

    Comment number 1636.

    Whenever I see people earn ridiculous amounts of money, whether their field is business, sports or entertainment, my reaction is always one of disgust.

    These days we seem to accept that capitalism is the only ideology open to us. I think a lot of us are looking for some new ideas.

    Anyone got any?

  • rate this
    +1

    Comment number 1635.

    find business earn income not just decide how a service is distributed.
    -
    Making choices based on other people's work. With a whole host of advisors who are specialists in their fields. I'm sure some tough choices are made,but they are hardly made on the basis of one man's work.
    Management of the few is the same as management of the many, a matter of numbers...Sun Tze

  • rate this
    +2

    Comment number 1634.

    what's unbelievable is how many critics are chipping in....from Davos!!!

    All on a jolly at others' expense. Including Brendan Barber (and no doubt other union leeches).

    You could not make it up.

  • rate this
    0

    Comment number 1633.

    I don`t understand what`s there to analyse? This bonus to MR. Hester is in plain English and simply W R O N G !!!! Now which part of W R O N G is not clear?

  • rate this
    -3

    Comment number 1632.

    So many jealous people on here.

    I own a small business, and I couldn't do his job. Even if I could, I wouldn't want to, even for £2 million a year!

  • rate this
    +2

    Comment number 1631.

    By all means pay bonuses to executive directors but delay their payment for 5 years and set the bad years off against the good. Stretching, targets should be set - in RBS's case perhaps mainly based on share price and a return to the private sector. Why not just give him out of the money options?

    Bonuses should only be to reward performance above expectation - now they're routine. S/holders lose.

 

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