Bonus for RBS boss hangs on two provisos

January 24, 2012

By George Hay

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Stephen Hester should get his annual bonus – but only if Royal Bank of Scotland can clearly justify the award. The state-controlled lender, and its chief executive, also need to show they understand the toxic political dimensions: and give any proceeds away to charity.

Banker-bonus controversy has accompanied Hester ever since he became the RBS chief executive in 2008. Most UK taxpayers – who also own 83 percent of the bailed-out bank – are simply too disgusted to believe that extra awards make sense. UK government ministers, acutely aware of the political capital at stake, are eager to deflect the dismay.

Just like any other shareholder in any other listed company, the UK government can vote against a pay award approved by the RBS board. But such votes, at least at the moment, are advisory.

If the UK government is prepared for a contractual fight, and is willing to risk a walk out by Hester or Chairman Philip Hampton, it might press on regardless. It can also make life difficult for RBS in other ways such as when it comes to reappointing directors.

But blocking a payout for pure political expediency ignores another critical issue: substance. If Hester was promised a bonus, and he has met the accompanying performance conditions, it is unfair to rewrite his terms of employment.

As it happens, Hester is probably not entitled to the full whack, currently potentially worth 1.6 million pounds. But performance criteria, as publicly disclosed at present, are nebulous. Shareholders should be told, clearly, what Hester’s targets were and how well he achieved them. Since this sort of disclosure would dovetail with business secretary Vince Cable’s call, on Jan. 23, for more transparency, the political heat would be turned down.

Yet Hester and RBS need to do more than explain. If bonuses are paid, public opinion will be enraged regardless of the circumstances. Hester could waive his entitlement, but that would make it harder for RBS staff to accept future payouts. It would be better – to calm the public anger and preserve the important principle of performance-related remuneration – to donate any bonus to charity.

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