The government's Hester problem intensifies
Peter Hoskin 1:25pm
First there was Fred Goodwin, now there's Stephen Hester. The chief executive of RBS is
fast becoming the bête noire of the British banking system, thanks to his roughly £1 million share bonus which, we learn in the Sunday Times (£) this morning, may be topped up with an extra £8 million over the next few
years. Little wonder that Iain Duncan Smith admitted on the Marr show earlier that there may be a
severe public backlash, and that the government could suffer from it. He suggested that it would be better, for all concerned, were Hester just to forego the million.
It's one of those debates where it's easy to see and understand both sides of the argument. On the one hand, the government can't see RBS sunk, not least because it wants a return for taxpayers, so it has to be careful about retaining and attracting the best possible staff — so that means competitive wages. This was the point that Danny Alexander made on the Sunday Politics just now, saying that a stronger political intervention over Hester's bonus would have been worse for the taxpayer in the long run. But, on the other hand, it's morally questionable that a state-owned entity, that had to be rescued from outright collapse, should still be paying out the big bucks, with hefty bonuses on top of hefty salaries.
I veer more towards the second argument myself, for many of the reasons given by our former editor Matthew d'Ancona in his Sunday Telegraph column this morning. As Matt puts it, ‘Whatever it says on his contract, Hester is there as a public servant, with a public mission that should be governed by a public-spirited ethos.’
Obviously, a balance needs to be struck between the two competing concerns — but that was never properly struck by the last government when it first took over RBS and signed many of its contracts into being, and it seems that the current government has't done enough to recify that since. And so David Cameron is left in a position where his rhetoric is far outstripped by the reality. The PM talks about cracking down on excessive and offensive bonuses, but he is basically left hoping that Hester himself declines the rewards being offered to him.
This, in fact, is a feature of much of the coalition's policy around high pay and bonuses: we cannot be sure whether it will have any effect. It was telling that when Vince Cable launched the government's plans for curbing excessive executive pay, in the Commons last week, he emphasised that, ‘Lasting reform depends on more active shareholders and responsible businesses doing more to push the agenda forward.’ He admitted afterwards that top salaries may not fall, after all.
So will Hester make the government's life easier, or won't he? He's under no legal obligation to do so, that's for certain, and there are no signs, so far, that he will. But there is now a precedent: we discovered last night that the chairman of RBS, Philip Hampton, waived his share bonus of £1.4 million. If Hester — along with other bankers at RBS who could be in line for more — doesn't do likewise, then the political implications could be immense.
Previous
daniel maris
January 29th, 2012 1:43pm Report this commentWhat exactly are these bonuses for?
An incentive? Will if the Chairman has given his back that must mean he will be working less hard and less effectively next year. Incidentally how many days does a Chairman put in? Isn't it normally something like 2 days a week? In which case the £1.4 million is more equivalent to £3.5 million on a pro rata basis. Let's not forget that.
Or is it a reward for effective work? Well the share price has fallen 40% under their tutelage over the last year...so why the bonus? No doubt they'd say "because it would be far worse if we weren't here managing superbly..." But that's like the joke about the anti-elephant pills...how could you ever assess that?
Finally, are they claiming it's the going rate? Well, that's an issue isn't it...but what is a going rate. I've heard that managers in Germany get paid far less generally. And surely the going rate is for people who can do the job. Are we really saying that out of a populaiton of 60 million only Hester can do the job. He came from British Land which wasn't even a bank and seems to have picked things up pretty quickly. Can no one else do it.
Here's my proposal: all senior bank directorships should be subject to fixed price 5 year contracts with no bonuses and firms should be legally obliged to take the lowest bid of the person they consider is able to do the job.
Bob
January 29th, 2012 1:53pm Report this commentThere is far too much sanctimonious guff being spouted on this subject. The previous government negotiated a contract for this man. By those terms he is entitled to his pay. Full Stop. But is you also count the value to the economy of restoring RBS to financial stability then he is worth the money. And then consider the impact of the loss of trust in the word of the UK Govt should it renege on its contract. All in all, politicians and journalists would do well to pause and think before speaking and acting.
Dan Grover
January 29th, 2012 2:11pm Report this commentI find it a bit frustrating that, on Question Time, both the Coalition MPs were so wet on this issue. I side with Alexander:
1 - People say the bonus should be based on success, and it is. Not only did he only get half of what he could have (suggesting there is some degree of scrutiny involved. Additionally, they were shares, not cash, so the better (or worse) RBS does, similarly so will his remuneration.
2 - It's expected. Sure, the government *can* over-ride that as majority holding member of the board, but what sort of message does that send out to whoever next takes up the mantel when Hester inevitably leaves? That "here's your pay package, but we'll probably not give it all to you because The Guardian doesn't like bankers"? £1m is a lot of money, but it pales into insignificance compared to the money we've invested in RBS and that, one day, we may see returned to the tax payer when RBS is sold.
3 - In 2010, RBS lost £1.6bn. In 2011, they made £2bn. This is not a reward for failure - this is someone who, it appears, has done a good job in very difficult circumstances.
I don't think Hester is a public servant. He's not relying on the government for his job - he was doing very well before his employer was ever owned by the government. It's RBS and thus the government that needs him. He's not running a bus service in a rural town. He's not a quiet civil servant putting together agricultural statistics no one's going to read. He's doing a job that few people will ever thank him for, and instead call him greedy, despite his success (or, indeed, failure) potentially filling a £200bn+ hole in our finances. I don't think he's a public servant, rather he's performing a service for the public - and charging accordingly.
If we ever want to see RBS returned to health, we have to come to terms with the fact that the small pool of people capable of performing such a feat cost a lot of money. I'm sure you could find a Westminster Intern who'd do it for travel expenses - but unless public sacrifices are more important to you than RBS actually turning around, I'll take my chances with the guy who actually knows what he's doing.
Holly ......
January 29th, 2012 2:15pm Report this commentAre we getting duped here?
There is lots of talk about no rewards for failure, which agree with, but for Hester to make the vast sums being splashed around he first has to be sucessful, thus rescuing RBS, so we have more of a chance of getting our money back. Now, it would seem that sucess should not be rewarded either. If the RBS share price gets to such a level that it does net Hester such vast amounts,
ALL the other RBS shareholders make money as well.
This country gets dafter by the bloomin' day.
TrevorsDen
January 29th, 2012 2:15pm Report this commentit would be nice indeed if mr hester received no bponuses, nbut that option was the temptation that Labour used to attract him to the post in the first place.
The money does not come from taxpayers and if RBS get themselves out of its hole then it is the taxpayers who benefit.
This story is a load of bollocks and it speaks volumes that the likes of the Spectator and the Telegraph are happy to blow on the embers rather than pour cold water over the accusers.
D'Ancona is a pillock, from a long line of useless, supposedly right wing, infant minded journalist pillocks - RBS is is a publicly quoted company. You want it run by Sir Humphrey's?
Was it Crossman who said 'Do you want Marks and Spencers run like the Co-Op?
Like all newspapers the Spectator shows itself run by the potency of the next headline. What a bunch of crapheads.
BigAl
January 29th, 2012 2:27pm Report this commentI think you have your example of how the public sector acts now!
kevin
January 29th, 2012 2:46pm Report this commentThe BBC who lead this charge should compare Hestors salary with their won executives and "talent". Does a man who controls a bank with a balance sheet greater than the UK economy, deserve to earn less than other public servants like Graham Norton
whatawaste
January 29th, 2012 2:52pm Report this commentSince Hester took over RBS job losses are 30,000. Some might say he is "Fred the shred mark2"!
Nickle
January 29th, 2012 2:58pm Report this commentSince the government has run up debts of 7,000 bn, will the public sector workers accept pay cuts to pay for their errors?
After all if one banker screws up all bankers are guilty.
No real difference from blacks commit gun crime so all blacks are gangsters
Jews killed Christ so all Jews are Christ killers.
Just shows how screwed up the logic of the left is on matters, and what underlies their philosophy.
ellis000
January 29th, 2012 3:01pm Report this commentI despair - what a load of sanctimonious twaddle. This guy was recruited on a contract with an expectation of earnings and now he is supposed to convert to a civil service pay package? What world are you lot living in? Do any of you understand employment law (I most certainly do)? Is there some sort of socialist virus going around I am unaware of? I am a shareholder in RBS and I expect Hester and the board to turn the bank around and recover my, and the taxpayers' investment. If he leaves and the share price collapses who wins and who do I sue?
James Strong
January 29th, 2012 3:02pm Report this commentThe problem arises because RBS was bailed out.
Failing businesses should not be bailed out.
As for the phrase attributed to Matthew D'Ancona, 'Whatever it says on his contract...' I say 'What a load of bollocks.'
If that's the attitude of anyone here then I hope they don't get their salary this month on the grounds of 'whatever it says on (your) contract, we're not paying you.'
Biggestaspidistra
January 29th, 2012 3:21pm Report this commentTD: " RBS is is a publicly quoted company. You want it run by Sir Humphrey's? "
You're forgetting a chunk of recent history. An overpaid elite brought it and us to our knees. And the Co-op is doing very nicely thank you, probably a lot better than than that overpriced superfluity M&S.
Axstane
January 29th, 2012 3:37pm Report this commentAt the time of the vast deluge of money poured into the two Scottish Banks I wrote that for the government not to exercise boardroom control was stupidity. The entire affair was put into the hands of a Brown buddy, Lord Myners. He was supposedly a financial wizard who had to admit that he had no idea what he was doing when he signed off on Fred the Shred's parting package and pension.
Simon Stephenson.
January 29th, 2012 4:13pm Report this commentDan Grover : 2.11pm
Yes, my thoughts too.
The argument about whether or not top executives, in general, are paid too much money is quite separate from whether or not we should pay the RBS chief executive as much remuneration as we are paying Hester.
michael m
January 29th, 2012 4:21pm Report this commentIf Labour did not want bonuses to be paid they should have excluded them in any contract they drafted for Mr Hester to sign. Why did they not do this- did they engage him on a false prospectus?
If he walks out - and I would not blame him- who does Mr Milliband think will take over for a job with such hugh resposibilities and no incentives and public humiliation as the price for success.
I am afraid that all this is typical of the something for nothing society we have sadly become. Lottery winners and so called highly paid celebrities and sportsmen are applauded but wealth creating business people are booed.
Adam Nixon
January 29th, 2012 4:36pm Report this commentUnder no circumstances should he be expected to "forego the million", as you write. The word for which you are groping is "forgo".
se1man
January 29th, 2012 4:37pm Report this commentAward him a whacking great bonus by all means, but defer it until RBS is sold off at a tidy profit for the taxpayer.
David B
January 29th, 2012 4:38pm Report this commentWho gave him the contract and why? Labour that's who. The real question is why did they give out these contracts with bonus.
David Lindsay
January 29th, 2012 4:38pm Report this commentThe paper fiction of UKFI must be discontinued. As UKFI itself has said, pretty much in so many words, no one is ever going to want to buy the nationalised banks, so they are going to be in public ownership forever.
Pete Hoskin
January 29th, 2012 4:43pm Report this commentAdam Nixon: Actually, according to the OED, 'forego' is an acceptable variant spelling — so it's staying as it is, I'm afraid.
Barry Bilge
January 29th, 2012 5:03pm Report this commentIf the Government is unhappy with the way RBS is being run it should do the thing shareholders up and down the country should be encouraged to do in the same circumstances - sell their shares.
That is the ultimate sanction a shareholder can inflict but all we are hearing is the Government speculating they will change the law when it is not needed.
IanH
January 29th, 2012 5:06pm Report this commentThe BBC have been all over this non-story, but I don't seem to have seen them mention paying the clueless Johnathan Ross £21,000,000 for 3 years crud, let alone their own inflated salaries
Pete Hoskin
January 29th, 2012 5:09pm Report this commentAlso, for the benefit of CoffeeHousers such as TrevorsDen, I should probably say that this is one of those issues that I'm still struggling to make my mind up about — and may never fully do so. That's why I summarised both sides of the argument, and said that they are both understandable. It's also why I said (what is true) that I 'veer' towards the 'this is too much' side of the debate — but, for now, it's not much more than 'veering'.
Dan Grover: That's certainly a persuasive argument for the other side of the debate. Thank you. More like it, please!
Widmerpool
January 29th, 2012 5:12pm Report this commentJust compare Bloomberg's ticker last week to the effect Hester's bonus cut by 50% with that of the BBC
UK media just don't get it. Investment Bankers like Hester operate in a global market even if it is based in London! I for one don't want UK plc's major asset managed by State Employees just look what they did to British Leyland etc in the 70's
Publius
January 29th, 2012 5:13pm Report this comment"Adam Nixon: Actually, according to the OED, 'forego' is an acceptable variant spelling — so it's staying as it is, I'm afraid."
Better to stick to "forgo" if I were you, Mr Hoskin.
daniel maris
January 29th, 2012 6:31pm Report this commentWidmerpool,
None of your assertions have been tested. What has been tested is the current system whereby these bankers got huge bonuses but couldn't spot the toxic debt buried under the "Triple A" rating.
I think we should have put a civil servant in charge of the bank. I think you'd find that there are plenty of double firsts from Cambridge who do just as well as Hester.
It would also be interesting to hear how much time Hester actually puts in. He seems to have time for riding to hounds. Does he take a ski holiday as well...and does he have the standard four weeks in the Caribbean or Sardinia as well?
We know nothing of what he actually does. Having had some experience of high level decision making I suspect it's not half as onerous or demanding as people are making out.
Scary Biscuits
January 29th, 2012 7:35pm Report this commentWidmerpool, the BBC does get it, perhaps better than you realise. Even top stars like Clarkson make more out of non-BBC work than they do working for the BBC, they just need the BBC for the initial exposure. I would bet any money that somebody good would do his job for free for a year, just for the chance. So why does the BBC pay him £1 million? Because they can and because it isn't their money.
fifer
January 29th, 2012 8:00pm Report this commentJesus wept.
I just wish Hester would go on TV himself and say something along the lines of:
a) Since this basic fact appears to have slipped your notice, I wasn't there when RBS failed. I was brought back in to fix it - by Labour - and thereby get you your £42 billion quid back.
b) Under my leadership the bank made £2bn last year
c) The publicly announced plan to get you your money back remains on track
d) Does anyone think they'd do a better job of getting you your money back? If so, feel free to try.
Frankly, if he gets me my £42bn back, he can have a £50m bonus presented to him by the Playmate Of The Month jumping out of a cake.
daniel maris
January 29th, 2012 8:50pm Report this commentNo - he wasn't there when it failed. But Sir Fred was, and walked away with hugs pots of money.
Where was he then? In British Land...stoking up the property bubble?
daniel maris
January 29th, 2012 8:57pm Report this commentThe guys got form on bonuses. Here's what he got up to at Credit Suisse First Boston:
"...in a management reshuffle, John Mack, now the Morgan Stanley chief, showed him the door. Hester had offered huge guaranteed pay packages to keep 40 bond traders at the firm. Mack was annoyed they would get so much - one received $45m..."
Read more: http://www.thisismoney.co.uk/money/markets/article-1645189/City-Profile-Stephen-Hester-RBS.html#ixzz1ksnGAXhZ
So you can see why, if he was busy arranging £45million bonuses for his mates in banking, he can't see what all the fuss is about when it comes to £1 million bonus.
Colin
January 30th, 2012 6:10pm Report this commentfifer
January 29th, 2012 8:00pm
You should be in charge of HR and the remuneration committee at RBS!!!
The most sensible thing written so far.
Back to top