Hester's Royal remuneration
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.
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).