Was Hester right to waive his £1m bonus?

It's no surprise the RBS chief exec did turn down his bonus, placating the vultures in the process. But that doesn't mean he should have felt obliged to.

by Emma Haslett
Last Updated: 06 Nov 2012
The old adage that it’s lonely at the top must have rung depressingly true for embattled RBS chief exec Stephen Hester last night, when he finally gave into political pressure and waived his much-maligned £1m bonus. The prospect of Labour leader Ed Miliband’s parliamentary vote was what changed his mind - although David Cameron wasn’t exactly offering support, doing the political equivalent of sticking his fingers in his ears and whistling loudly in the hope that the issue would go away.

It would have been churlish for the Government to intervene. Partly because in the past, it’s vocally supported the rights of companies to pay what they want, but also partly because, when RBS became state-owned, its board was promised it would be run like a normal private company, with Government investment authority UK Financial Investment  nominally overseeing things. Even this morning, foreign secretary William Hague told the Today programme that he thinks it’s ‘sensible’ that the Government didn’t intervene. Although by doing so, it has effectively handed a victory to the opposition…

You can understand Hester’s decision: when his £963,000 bonus (60% of the full amount he was entitled to) was announced on Friday, the media mob was out en masse, torches a-blazing merrily. That’s despite the fact that, a) the bonus was to be paid in shares – which, arguably, would give Hester even more of an incentive to turn the bank around and push up share prices. And b) although commentators have pointed out that RBS’ share price has fallen this year, Hester couldn’t have done much about that: new European legislation has pushed down share prices for almost every financial institution in Europe.

On the other hand, he has shrunk the bank’s balance sheet and is in the process of closing down its controversial investment banking arm, both of which should be good for share prices in the long-term.

What’s encouraging is that Hester reportedly had the full support of his board, with many of its members actively urging him to go against his critics and take the bonus. Indeed, while chairman Sir Philip Hampton waived his own award, he said it wasn’t designed to put pressure on Hester to do the same. Now, Sir Phillip is apparently expected to seek ‘urgent’ talks with ministers to find a new way to remunerate the CEO that won’t encourage the media vultures to start circling. Anyone remember luncheon vouchers?

Of course, we’re all familiar with the arguments against large bonuses – and in some situations, they’re absolutely justified. Findings this morning from the TUC, for example, have suggested that while the pay of the richest 20% of earners has fallen by 6% relative to inflation, salaries for the poorest have fallen by 43%

But it’s worth pointing out at this juncture that Hester never actually applied for the job as RBS CEO in the first place – he was drafted in by Gordon Brown. Yes, as in the former leader of the Labour Party. Funny how times change, isn’t it? 

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