LONDON BRIEFING:RBS's new chief made the right noises about boardroom excess, and then dived right in
IT ALL started so promisingly for Stephen Hester. The man charged with clearing up Sir Fred Goodwin’s mess at Royal Bank of Scotland won plaudits in February for his candid comments on boardroom excess: “I do think banking pay in some areas of the industry is way too high and needs to come down,” the new RBS chief executive admitted to MPs at the Treasury Select Committee.
“I intend us [RBS] to lead that process,” he pledged.
Four months on, any naive hopes that Hester might actually put his money where his mouth is have been well and truly dashed by the revelation that the RBS boss has been granted a pay and bonus package worth almost £10 million. His basic salary may be “only” £1.2 million a year, but that is being topped up with a cocktail of free shares, share options, cash, credit notes and debt.
That’s not what passes for restraint in the real world and has provoked an understandably furious reaction from the unions, politicians and the taxpayers who own 70 per cent of the bailed-out bank. Unfortunately – and astonishingly – the deal has already been agreed both by the RBS board and UK Financial Investments, the body which controls the government’s stake in the bank.
News of the bumper pay package came as it emerged that RBS, which has received £20 billion of taxpayers’ cash, is spending up to £300,000 over the next fortnight wining and dining corporate contacts at Wimbledon. In the league table of PR disasters, that’s right up there with the US auto industry chiefs travelling from Detroit to Washington to beg for bailout funds by private jet.
There are two sides to every story and thus the RBS marketing department defended the £300,000 entertaining tab by explaining that a contract had been signed and that the bank would have had to pay 95 per cent of the cost even if it had cancelled. But, and this is what none of the banks seem to understand, it isn’t always about money. Had no one at RBS stopped to think how this would look to shareholders, to taxpayers or to the thousands of bank staff who have lost their jobs in recent months?
Similarly, Hester’s pay package is applauded by some for being heavily performance-related, with the full rewards triggered only if he pushes RBS shares to 70p (double their current level) in the next three years. If the shares reach that target, the government will reap a healthy profit of £8 billion on its stake. Everybody wins, or so the argument goes.
But there is a loser – the lost opportunity to make amends for past excesses by setting new standards of pay restraint in the boardroom. In other words, to do what Hester promised he would four months ago. If a state-owned bank is unwilling to show the way on pay, and if the government lets it get away with it, what are the chances of anyone else stepping up to set an example?
As MPs on the treasury committee suggested yesterday, as they met once again to discuss the banking crisis, it smacks of a “business as usual” attitude from an industry that had led us to believe it was prepared to change.
Defenders of the Hester pay deal point to its performance targets, which they say will rule out any rewards for failure. Encouraging executives to chase their shares higher is a dangerous game, however, and one which helped us get into this mess in the first place.
What’s good for the share price is not necessarily good for the business – or for the wider economy. In the case of the banks, one of the conditions of receiving bailout funds was that they would start lending again, and at reasonable rates, to consumers and businesses. There has been precious little sign of that so far.
Hester’s disgraced predecessor, Sir Fred Goodwin, last week attempted to draw a line under the pension scandal that has turned him into a public hate figure by agreeing to reduce his annual entitlement from £555,000 a year to £342,500. Goodwin and UKFI, which approved the deal, were no doubt pleased with their gesture but it was widely regarded as too little and too late, as well as being too grudgingly given.
The £200,000-plus concession will do little to rehabilitate “Fred the Shred” into corporate life, nor is it likely to win him many votes at whichever golf club he attempts to join next. In fact, Hester’s pay package is probably the best news that Goodwin has had in months: if the new RBS chief carries on like this, he stands every chance of inheriting the title of Britain’s greediest banker.
Fiona Walsh writes for the Guardiannewspaper in London
