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Stephen Hester: for the good of banking, take your bonus!

So, the great “get the bankers” debate has roared its head again, with the media-hyped uproar around the 2011 bonus of Royal Bank of Scotland Chief Executive, Stephen Hester.

Hester, on top of his apparent £1.2M salary – leaked by the Labour government who approved his salary and bonus package at the time of his appointment – has this year been awarded a £963,000 bonus.

Now, if you read the newspapers and media, you’d think that this had been delivered to him in cash or gold, via a courier driving a Rolls Royce he just bought with it. Ah, no. It’s in shares that he can’t get his hands on the first tranch until three years time, and the last tranch in five years time. In the mean time, because its in share options and not cash, he doesn’t pay tax on them either: bet your newspaper or website article didn’t tell you that either! Once he does divest them, then both income tax and capital gains tax at the appropriate rates will be due.

But here’s the problem on all this focus on one man’s bonus. He’s one man who was appointed after the banking crash of 2008 to both save Royal Bank of Scotland and not only get the tax payer their £45Bn back, but make a profit on it. In fact, if you had to pick a banker who was both “clean” and right to do the dirty job at RBoS in 2008, then you, I or then Prime Minister Gordon Brown, couldn’t have picked a better one.

At the time of the global credit crunch in 2008, Hester had been out of banking for 18months, appointed CEO of British Land. Having been appointed Finance Director of Abbey National in 2002, he had taken the CEO’s position in 2004 in an effort to save the former building society which had expanded into financial services far too quickly. After dividing it into a “good” and “bad” bank, he sold off the bad assets for what were later seen as above book prices, and sold the residual good bank to form the core of Santander UK. He then moved to British Land, where he led its conversion to become the first Real Estate Investment Trust in the UK. After the banking crisis, chancellor Alistair Darling appointed him to the supervisory board of failed Northern Rock, to effectively over see there what he had done at Abbey National. Then came the need to bailout RBoS to the tune of £45Bn. Sir Fred was gone, who was to replace him?

Gordon Brown then made his second great decision of the financial crisis: he appointed Hester CEO of RBoS. With a background like Hester’s, he was both one of the few bankers with a presently “clean” record in 2008, and from his Abbey National experience one of the few with the capability to do the same scale of job at RBoS.

So appointed by Gordon Brown on a Gordon Brown approved contract, Hester took a job which would pay him 50% less than he was taking at British Land, and one which was very high profile in both public and media minds. We could almost have predicted this present outcome.

In 2010, Hester took a bonus of nearly £2M in shares: not much of a murmur from the media, plus the board of RBoS proposed to resign should their proposed £1.5Bn staff bonus scheme not be approved by their major shareholder, the new Coalition Government.

2011, and we suddenly have all this hype over one man’s bonus which is half of what it was last year: why? Personally I conclude its a reflection on the banking industry post-2008 and the lack of leverage that the coalition government are making of their large share holdings in the two major banks, and not Hester. Although to read the media now you’d presently think that Hester is Sir Fred Mk2.

Lets get to some facts here, which affect us all. Your contract of employment is your contract of employment. Its private, and between you and your employer. So if the Gordon Brown approved contract for Stephen Hester says he’s due a bonus, then he’s due a bonus: sorry, we might not like it, but facts and contracts are there in black and white. Secondly, his
bonus has:

  1. Been calculated and approved by the remuneration committee
  2. Approved by the rest of the RBoS board
  3. Approved by UK Financial Invest, the quango set-up to over see government bailout investments in RBoS/Lloyds TSB
  4. Approved by PM Cameron and Chancellor Osborne: better to pay him than see him walk away

Then how can we now say “sorry mate, but the DMail and Guardian say no!”

Yes, there is something wrong when people starve, others need food parcels and civil servants are expected to take pay cuts, in a country where someone from such a tarred industry gets such a huge bonus. But he is there to do a job for us the tax payer, and he’s doing it, under the contract which he/we (via the PM) signed and approved.

So take your bonus Stephen Hester, you are contractually entitled to it. But here’s the twist I would do, if I was in his position.

I think he should take the bonus on principle BUT donate an amount – between 20% and 50% – to a national level society banking initiative. Hester’s thing is gardening – he’s on the board of the Royal Botanical Society – so it could be an initiative to get young unemployed people into work through gardening. I can’t see that he can do this without Westminster push – it is banking bonus season – but we really do have this whole thing out of balance at present on the one guy who, if there is such a thing, is a pretty clean banker.

One guys bonus, however huge, won’t solve the problems of excess in the banking industry. Stopping him doing his job now will cost us the tax payer, in both a release package and the £30Bn loss we would currently make.

Plus, if Hester were to make one personal sacrifice and futile gesture to give up his bonus, what does that do except give RBoS £1M?

If there is to be a level of change in the banking industry that we the public demand, then £1M is but in reality a small singular gesture on one day. In banking terms, a proverbial damp squib. To ensure that it is not, to match the public outrage and demands it needs political support, and that’s the problem that at the core goes hand in hand with the failure of the bankers, and which so far since 2008 has also not delivered.

Good Luck!

photo credit: Mukumbura via photopin cc

Comments

  1. Its worth remembering that directors remuneration – whether salaries or bonus payments will be of interest to shareholders. Hence for that reason it will be included in annual reports and the like. Thus it is likely to be reported upon in the media and other places.

  2. No doubt there are a few people who would happily forego their earnings, and bonuses, for the greater good. But I suspect that most of the naysayers would keep it.

    If the man has done the job, why should he not be rewarded for it.

    The fact that most work incredibly hard without such reward misses the point. What we want is for people to be rewarded for doing well. It’s crazy to condemn someone for succeeding in a difficult job.

    There’s been some discussion at the Leveson Inquiry in past weeks about stories being in the public interest.

    The theme that’s coming out is that someone who is a rake isn’t a story, but someone who espouses family values and then turns out to be a rake is a story that the public has a right to know about.

    Similarly had Stephen Hester had lost billions, and then received a bonus,that would be a newsworthy story. 

    Good post Ian.

  3. I think you guys are gullible. Stephen Hester has been well rewarded for doing his job as CEO, with a salary package work several £millions already. What’s under discussion is whether he should receive a circa £1 million bonus on top of that. Remember the improvement in the fortunes of RBS has come partly at the cost of many redundancies of RBS staff in a cost-cutting exercise – they just happened to be in the wrong place at the wrong time. Plus there’s the backdrop of huge cuts in Government spending generally. The whole picture needs to be looked at not just the remuneration of a single CEO.