Transcript: Stephen Hester on bankers and bonuses

This morning, the chief executive of RBS Stephen Hester appeared on Radio 4’s Today programme to discuss the recent furore over his bonus. Hester revealed he nearly resigned over the crisis and agreed that bankers have been making too much. Here’s the full transcript for CoffeeHousers.

James Naughtie: Banker without a bonus? You might say he’s a lonely figure in his business; he’s Stephen Hester, Chief Executive of the Royal Bank of Scotland. The public furore about executive pay in a bank that’s 83% owned by the taxpayer caused him to forego the bonus he was awarded this year in the form of more than three and a half million shares, worth probably about a million pounds. He told his staff in a letter that the affair had been uncomfortable but that the bank did not exist in a vacuum and he told them that they were making progress in restoring its battered fortunes. Stephen Hester is with us, good morning.

Stephen Hester: Good morning.

JN: Let’s be clear about what happened. You wanted a bonus, you thought you’d deserved it, you were forced in the end to decide that you simply couldn’t take it because of public anger, is that more or less right?

SH: Yes, that is right and I took the judgement that it was going to be damaging for RBS to, if you like, stay in the intensity of the spotlight that we had got into and in the end, the job that I was asked to do three years ago when RBS was collapsing was about recovering this bank and about helping it to succeed and that’s what I really want to accomplish.

JN: The question I imagine that’s in the mind of most of the people who stirred up the furore which caused you to take that decision is a pretty simple one and it’s this: why isn’t 1.2 million enough?

SH: I have great sympathy and I hope understanding with people in focusing on income differentials and the issues of high earning although that is far from restricted to me, but I think it is important to come back to – and we’ve lost sight in this debate of what we are trying to accomplish at RBS and why that’s important and why that’s valuable.

JN: I want to come back to that but the problem that a lot of people vented their anger about is that they thought that a basic salary of 1.2 million – and I accept there are people in other banks earning much, much more than that – was something that puzzled them. It now irritates them at a time of austerity when they are being asked to trim their sails and accept freezes and sometimes pay cuts, and they ask why is that not enough?

SH: And I think that, if you like, the societal issues of what people earn in different walks of life is something that of course I’m not going to be able to solve, it’s a political debate and I’m a business person. So other people decide what to pay me, as you’ve pointed out it may be less than others and it may be a lot of money, but what I have to make sure we do is say what is the link, what is RBS trying to accomplish, are we accomplishing that and then should the people, whether that be myself or others, be recognised for that accomplishment and I have to say to you, when I was asked to take on this job three years ago I had to replace the whole senior management team of RBS. We had to go around the world looking for the best people, not just people to run a bank well but people to defuse the biggest time bomb in history in terms of bank balance sheets and those people, those people are doing a good job. I think they deserve recognition if they do a good job, it’s our task to make sure there is a connection between the job that the people are doing and of course how they get treated.

JN: I think all fair-minded people would say that by all the evidence that’s available, you are doing a good job. The government thinks it, people who look at the banking industry think it, no one is assuming that you don’t do your job extremely well, with dedication and with great skill but you’ve described eloquently the fact that you believe this is a societal issue, to use your phrase. You’ve also talked about the biggest time bomb in history and what people ask again is a very simple question – why should the banks as a whole have produced what you call the biggest time bomb in history and simultaneously, during that period, paid themselves more and more and their shareholders less and less?

SH: Clearly, as you know, I was not even a banker immediately before the financial crisis and was asked to join from another industry and I do think that one of the things that happens when you have a long period of expansion is that you can get over-confidence and, in the case of the banking industry, I think there was both over-confidence and, with the benefit of hindsight, over rewards and one of the things that we are trying to correct and one of the things that RBS is trying to lead with is reconnecting the job that we have to do for the country, the job that we have to do for our shareholders and our customers with how the people are treated. I agree that connection is important.

JN: Right, this raises a very curious point I think because you say you want to get on with the job, you acknowledge what your chairman, Sir Philip Hampton, has said, that you think broadly speaking that bankers were over-paying themselves, for a long time when you weren’t one. What people ask, again it’s a simple question, you’re dedicating yourself to a very difficult task with all your skills, are you going to work less hard because you don’t get a bonus?

SH: I think that the reasons people work cross a wide range of issues and they are in part to do with satisfaction and the things they get out of it, in part to do with how they get paid and I think that we would make a mistake as a society if we forget how wealth is generated, how successful people are motivated and, in the case of RBS, it’s more complicated because not only are we trying to generate wealth in terms of profit and something that ultimately will give the taxpayer £45 billion back – by the way that £45 billion was lost three years ago, but in addition to that we’re defusing, delicately, this big time bomb and I think that’s an incredibly valuable thing for the country if we do it well.

JN: Absolutely and I’m sure nobody with a fair mind would disagree with you there but what they might say is well why does a banker, exercising his or her skills, need more money to do it well where a doctor performing fantastically complicated operations which really can’t be done in most cases by anybody else or by very few people, not need a constant top up of bonus after bonus in order to do the job as well as he did it last year?

SH: And of course these issues of what different people get paid are as old as the hills. I am sure there are people that…

JN: It doesn’t mean they’re not relevant.

SH: No, you’re right and I’m sure if you revealed your salary people would debate what you get paid relative to a nurse or whatever else you might want to compare. I can’t, I don’t have the luxury of that debate, I’m not a politician, I don’t want to be. What I have to be is a commercial animal that rescues value for the taxpayer from RBS, that serves our customers well and that defuses the debt time bomb that we were sitting on top of three years ago, that’s my job.

JN: Do you think there’s been a bit of a witch hunt?

SH: I understand why these issues are controversial, particularly in a time of austerity. This isn’t the only country going through austerity but I understand why it’s controversial and of course we underestimated that going forward but yes, the spotlight RBS is in makes our job more difficult and in turn makes it harder for what we have to do for the country but we have to overcome that and the reason I am talking to you today, the reason I talked to my own people yesterday, to the staff of RBS, is really to say look, we have to move on, we have to win for RBS. I think the recovery of RBS is good for many other people and that should be our focus.

JN: You make the point that that’s your task and your commitment, do you accept that if you are going to bring people along with you, the people who were as it were responsible for the furore, and George Osborne was talking last night about the danger as he sees it of an anti-business culture, it has two prongs to it. One, that you need to restore the fortunes of the bank in as good a way as you can and get as good a return for the taxpayer as you can and secondly, you need to address the question which you’ve acknowledged is a genuine issue, of executive pay getting out of control across the board. So there are two sides to it.

SH: I think that our job is to try and create a bank, which serves its customers well, which is safe and sound, a long way from where we started and where ultimately there are other investors that want to buy our shares. It’s not our job to be politicians but what I agree with you on is that we are held in some respects to a higher standard than others, that may make our job more difficult but that is the case, and we have to try and behave in a way that also leads on some of these difficult issues of how we interact with society. We can’t be completely different than all the people against whom we compete but I accept that we need to have a sensitivity and I think this furore illustrates that.

JN: And you made the point in your letter to your staff that you don’t exist in a vacuum. Do you think there was a danger that your predecessors and your industry as a whole tended to forget that fact?

SH: I think when any industry has such unbridled expansion as banking did over twenty years, yes, hubris sets in. By the way, I think hubris set in to a number of countries in terms of their period of unbridled expansion and it’s rather painful when you have to correct.

JN: In shorthand, it got out of control.

SH: I think that hubris set in, I don’t think that, but let’s not demonise a whole industry, let’s not demonise something that is fundamental to the world economy which employs millions of people even today. There are millions of people doing a good job, an essential job. We need to correct the areas where that job was done poorly but we shouldn’t forget that banking is important, financial services is important, it supports the economy, it supports millions of jobs and we need to remember that, burnish that and remove the things that take away from it.

JN: You referred in your letter to your staff how uncomfortable this had been for you and for the bank, did you ever consider just giving up, quitting, getting out?

SH: I’m certainly not a robot and there have been some deeply depressing moments, by the way not just now but in the last three years.

JN: You thought about it?

SH: I guess in the end, in the intensity of it, I came to the conclusion that I thought it would actually be indulgent for me to resign and what I ought to do was to draw, if you like, on the reserves of strength I have and try and make RBS a success and for so long as I feel that I can do that, so long as I feel I’ve got the tools and I’m adding to that, that’s what I want. I want RBS to recover well and ideally for me to be remembered as someone who contributed to that process.

JN: So you considered it but you thought it was the wrong thing to do?

SH: That’s right.

JN: You referred earlier to what you called a societal issue, the fact that your bank doesn’t exist in a vacuum. People have been asked to accept that huge rewards for many people at the top of banking are because of its success, they now know that it was in your own phrase ‘a time bomb’. How great do you think needs to be the realisation of that fact, when it sinks in, in the financial community? The acceptance of what many people feel about the failure.

SH: I think we need to be clear, and you need to be clear about my remarks, I was referring to RBS and not to the whole industry.

JN: Okay.

SH: RBS was an extreme of the industry and it was RBS’s balance sheet that was a time bomb, which we are successfully defusing. Again, banking made mistakes as an industry but they were mistakes that were mirrored in the economic management of many countries around the world and in other people’s exuberance. So all of these things the world is now painfully curing and I don’t think there are many people that are entirely innocent of having been called away from it, but that’s what we have got to keep in mind, is how to have a well-balanced, sustainable economy going forward and for banks to mirror that. RBS did not, we are clearing that up, we are fixing it and I think going forward it is our goal to try and be a model, if you like, of how banks can contribute to society and to make their shareholders some money along the way.

JN: Well-balanced is an interesting pair of words, isn’t it, in this context because what you seem to be hinting at is an acknowledgment that there needs to be across society a sense of fairness in the kind of society that we live in and in most industrialised societies there is an acceptance that not everyone gets paid the same, of course. But there needs to be a sense that it’s somehow fair, that it’s not so far out of kilter that it’s somehow offensive which is the thing that the bubble that seemed to burst – and you were unlucky enough to be in the middle of it. How do you think that we should all address that because it is the central question isn’t it?

SH: The central question that I’m charged with is how to make a commercial success of RBS and one of the central questions for society is not how do we divide the pie but whether we have a pie at all, how do we get economic growth and how do we be successful? I think it’s really vital that we not lose sight of that point. I accept and agree that if we have a pie, once we have a pie, there is a dividing of it and there are societal issues, those are largely political and I can’t ignore them of course. My personal view is I believe strongly in issues to do with equality of opportunity, I believe in a progressive tax system, I have no problem paying more tax but I don’t think that, if you like, cutting off success or cutting down success is the way to go about fairness in society.

JN: But some people, critics of the system which, like it or not, you seem to represent, would say that people are being asked to believe that a successful economy in the modern world means a greater gap between those at the top and those at the bottom. Is there a danger from your perspective that that has become a belief that is seen to be true by too many people and do you think it’s true?

SH: I think it is important for all societies to try to manage those societies, if you like, with the acceptance of all. I think that …

JN: Acceptance is important?

SH: I think that does require focus, particularly political focus, on societal issues but it also requires an economy that’s successful and these things have got to rub along together and we’re obviously in a period of austerity, having some problems in how these things rub along together, but it doesn’t make it any less important that they do.

JN: You famously said that your parents thought you were overpaid, did they say what will you do with an extra million? What’s the answer to that question if you’ve got a lot already?

SH: I’ll tell you, I love and admire my parents, I think they love and admire me and it’s a source of great strength to me.

JN: So you gave them a satisfactory answer did you?

SH: I think they feel upset that I accused them of what I accused them of and they are highly supportive.

JN: Stephen Hester, thank you very much.

SH: Thank you.