Parliament bares its teeth on RBS

 

            Mr Hester decided to waive his bonus when he heard there would be a Commons vote on it. Labour who had signed such a generous contract in the first place decided to table a debate and vote  in Opposition time to condemn it to make amends for their original deal. Many Conservatives and Lib Dems would have voted with them. 

             The truth is the Board of RBS was set the wrong task and given the wrong remuneration for doing it when the bank was stupidly nationalised in the first place.

              Will this government now call them in and change the requirements? They should be instructed to split the bank up, creating new functioning smaller High Street banks which can be immediately floated off into the private sector, where they need to raise more capital to allow them to lend more to power an economic recovery. The sooner the government does this, the sooner its economic policy will function better. If the current Board does not want to do this, then there are plenty of able people who would happily go in and do it for them, for less pay.

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101 Comments

  1. Mike Stallard
    Posted January 30, 2012 at 7:40 am | Permalink

    I could not agree more.
    And this is most certainly not the first time you have said it.
    Iceland and (in the next year perhaps) France are going to be very sorry they nationalised or propped up their failing banks.
    In the event of Scottish Independence, guess who will be privileged to get the two failed/nationalised Scottish banks…………..

    • APL
      Posted January 30, 2012 at 8:29 am | Permalink

      Mike Stallard: “Iceland and (in the next year perhaps) France are going”

      Ireland, perhaps?

      Regards

    • Disaffected
      Posted January 30, 2012 at 9:57 pm | Permalink

      Let us hope that the tory rebels call a leadership contest in the Tory party. They might not be able to stop Cameron supporting Clegg’s fanatical dream of an EU state, but they have the power to stop Cameron first, call a general election and get rid of the LibDems and Cameron. Then they will be able to call an in out EU referendum. Time this EU integration stopped.

  2. James Reade
    Posted January 30, 2012 at 7:49 am | Permalink

    Hmm, who to believe? One politician against another. Redwood says Labour damn well contracted in a lovely huge bonus for the RBC CEO, Labour’ Umunna says the bail-out left the bonus to the discretion of those contracted to run RBC. Who to believe?

    It would be nice to see that actual bail-out deal documents and contracts, rather than have to put up with politicians trying to spin stories to make their party somehow seem the morally upstanding one (haha, as if either party could be!).

    • APL
      Posted January 30, 2012 at 8:31 am | Permalink

      James Reade: “It would be nice to see that actual bail-out deal documents and contracts ”

      Since this is a public company and there is a public interest aspect why don’t you submit a foi request?

      • James Reade
        Posted January 31, 2012 at 7:58 am | Permalink

        Love it – you turn the question around on to me! Why on earth should the burden of proof be on me? Why shouldn’t the politicians peddling lies be forced to produce the proof, exactly?

        • APL
          Posted January 31, 2012 at 9:46 am | Permalink

          James Reade: “Why on earth should the burden of proof be on me?”

          Firstly it was a constructive suggestion, I was not instructing you to do anything.

          Secondly, at the moment we still live in a democracy, of sorts. While taking part in an online forum may be one facet of democracy, there is not really a substitute for getting involved yourself.

          Of course if you choose not to, then that’s your affair.

          Thirdly, If you were offering me a position as your secretary, then I politely decline.

          And finally, I agree, it is tedious to have to pin these professional ( in the sense that they are paid not in the sense of the standard of their work ) politicians to the wall on each tiny detail, but currently, that is the nature of the beast.

    • forthurst
      Posted January 30, 2012 at 9:04 am | Permalink

      In the scheme of things, Hester’s bonus is completely irrelevant. Politicians, as is their wont, are simply playing to the gallery which also includes themselves. Presumably he is not in breach of any obligations or undertakings given originally. What is of far more concern is that the government has effective control through its shareholding and yet is doing nothing with RBS for either the company or the country to mitigate the disastrous mess bequeathed by Labour.

      • Stephen Almond
        Posted January 30, 2012 at 7:59 pm | Permalink

        Couldn’t agree more.
        I was astonished, on a recent trip to Tesco, to find no one talking about RBS!

    • A different Simon
      Posted January 30, 2012 at 9:35 am | Permalink

      James ,

      Isn’t the real issue that the politicians are busier trying to court public opinion by feigning disgust about the size of someone elses bonus than addressing the really important issues ?

      As John has pointed the critical thing is that the shareholders and board have set the correct objectives .

      We see this is not the case . They are happy to leave a massively oversized bank in the too-big-to-fail category .
      They are happy for organisations to retain their banking charter and taxpayer backed deposit guarantees whilst carrying out casino operations with our money .

      This is completely asside from other important issues which they are just not interested in such as getting public spending under control , reducing the regulatory load to stimulate job creation , enabling private sector workers to make provision for their old age .

      Are the British electorate really this easy to fob off ? Our politicians seem to think so .

      • James Reade
        Posted January 31, 2012 at 2:23 pm | Permalink

        A different Simon, I think we agree! And I think John and I agree on some things other than just roads – ensuring shareholder structures enable appropriate representation of minority shareholdings in order that corporate structures better act in the public interest is the appropriate path rather than politicians attempting to influence individual decisions which are only a product of the set of incentives put in place by successive governments (of all stripes).

    • Kevin Ronald Lohse
      Posted January 30, 2012 at 9:35 am | Permalink

      Followers of this blog know that Mr Redwood invariably seeks to tell the truth as he sees it. The jury is still out on Mr Umanna.

      • James Reade
        Posted January 31, 2012 at 7:59 am | Permalink

        Er, no Kevin. I’ve pointed out repeatedly the half truths and outright lies your hero John peddles. The jury is well and truly out on both of them. Take off your blue tinted glasses and check out what the world actually looks like.

        • Sebastian Weetabix
          Posted January 31, 2012 at 9:37 am | Permalink

          “outright lies” – that’s a very strong accusation. Examples?

          Or should we just assume this is typical leftie hysteria, playing the man rather than the ball?

          • James Reade
            Posted January 31, 2012 at 2:25 pm | Permalink

            Hahahahah. I’m a leftie am I? Assume you didn’t read the stuff I wrote about the roads then?

            John peddles a number of lies about the economy – on the causes of inflation, the determinants of exchange rates and the root causes of the financial crisis (e.g. blaming Labour for not ensuring “adequate” asset ratios when the truth is that even adequate asset ratios would have mattered not a jot when those assets lost all their value in the financial crisis).

            Come on Sebastian – I think it’s you playing the man not the ball here.

      • Single Acts
        Posted January 31, 2012 at 9:41 am | Permalink

        “The jury is still out on Mr Umanna”

        My verdict is available but unlikely to pass moderation I fear.

    • Winston Smith
      Posted January 30, 2012 at 11:06 am | Permalink

      What’s the difference between saying “Labour agreed the contract” and, “we agreed the contract, but left it to the team we contracted to approve bonuses”?

      Question: Who agreed the contract?
      Answer: Labour

      Chuka Umuna used to work as a lawyer suing banks for larger bonues for investment banks.

      • uanime5
        Posted January 31, 2012 at 1:48 am | Permalink

        Question: Who controls how RBS is run?
        Answer: The shareholders.

        Question: Who is the largest shareholder?
        Answer: The Government.

        • lifelogic
          Posted February 1, 2012 at 7:46 pm | Permalink

          This is a bit simplistic rather similar to:

          Question: Who controls how the UK is run?
          Answer: The electorate

          Well not really.

      • James Reade
        Posted January 31, 2012 at 8:01 am | Permalink

        A world of difference. A big bonus was not contracted, RBS were not forced to do it.

        Serious; your lovely govt has just come out and said we don’t try and dictate what the private sector does and won’t interfere on any more bonuses, and yet you essentially say here when Labour did exactly the same thing that actually they didn’t. Judge all by the same metric. I know it’s hard.

    • Ross J Warren
      Posted January 30, 2012 at 11:16 am | Permalink

      It is true that Labour agreed the contract. Although it seems they were in such a hurry they hardly bothered to read it properly. Even so this Government is supposed to have sovereign power, and could do something if it thought it worth the time, cost and damage to confidence in the law of contract that would imply.

      “It would be nice to see that actual bail-out deal documents and contracts”

      Some hope, but you could try invoking freedom of information.

    • Bob
      Posted January 30, 2012 at 11:49 am | Permalink

      Based or Labour’s track record, I am inclined to believe Mr.Redwood.

      • James Reade
        Posted January 31, 2012 at 8:01 am | Permalink

        Based on Mr Redwood’s track record, I’m inclined not to believe him. Hence why I asked and made the point. I know it’s hard, you guys just love him and it’s really sweet. But he is a politician. Remember that…

        Reply: If you read the papers for the end of Labour’s period in office you will see that that government hired and signed the contracts for Mr Hester and other seniors at RBS, and this set his high base pay and gave the Board the task of assessing the bonus within the terms of the contract. I cannot see why you could possibly think otherwise.

        • Winston Smith
          Posted January 31, 2012 at 9:42 am | Permalink

          He’s just another Tory-baiting academic, paid by us taxpayers to indoctrinate our children.

        • James Reade
          Posted January 31, 2012 at 2:28 pm | Permalink

          Ah, glad you’re starting to address the issue here.

          But if I follow your line of reasoning, you’re telling me that the board was given the “task of assessing the bonus”. To my mind, that’s discretion, no? Forgive me if I’ve misunderstood.

          And do you have a difficulty with “high base pay”? I thought we had to pay market rates so we didn’t get idiots in these jobs, right?

          Reply: We have always said that the bonus had to be assessed and awarded annually by the Board under the contract. The governemnt could only stop or change that by intervention including overriding the contract or getting their agreement to change the contract.

    • Mike Stallard
      Posted January 30, 2012 at 2:27 pm | Permalink

      Be fair – the bonus isn’t the main thing. What matters a lot more is that the dear old generous taxpayer is not burdened with the vast bulk of the RBS.
      There was a very great deal written on this blog when that took place, I can assure you. To be honest, I really do not remember the bit about the bonus.

    • James Reade
      Posted January 31, 2012 at 8:03 am | Permalink

      Most interesting in all these replies John is that you haven’t replied. You could clear all of this up, but choose not to, hiding behind your fan club here.

      Is it because you don’t actually have the supporting evidence to back up your assertion?

      I’ll happily accept you’re right if you’re able to back up your assertion with some evidence (other than MORI polls and the like).

  3. lifelogic
    Posted January 30, 2012 at 8:40 am | Permalink

    Indeed RBS/Natwest, for three years, has mainly been calling many perfectly good loans back, wherever it can. This have left companies with the extra new financing costs, projects put on hold, financial damage and caused negative growth, loss of jobs and much damage across the nation.

    Where they have renewed loans they have charged far higher fees and margins and been able to (due to lack of competition in banking). Even a monkey could make money in bank lending at the moment (if they had any money to lend).

    I cannot really see that running a bank is any harder than designing jet aeroplanes, nuclear power stations, bridges or microchips and these engineers are often earning well under £100,000. Indeed had they had a better understanding of interactions, feedback systems, the interactions of components and structural system then the banking fiasco might well have better foreseen and avoided. As it is a very similar system.

    Bank CEO’s are not comparable with footballers or actors as they can often profitably be replaced by a far cheaper team. Twenty people perhaps 95% as good as Hester on just 100K each is surely better is most cases

    Where pay (for employment rather than for risk capital) is very high relative to the skills needed (areas such as law, banking, finance, insurance) it is a very clear indication of a market failure (& unfairly over protected professions) of a failure of competition or the mechanisms for shareholder or other control systems).

    The government should empower shareholders to prevent the top people from helping themselves to shareholder’s funds and sort out the lack of competition and mechanisms that allows these often unjustified high salaries to occur.

    In effect these top people (like MP’s) are virtually fixing their own pay and terms of employment this is not a good mechanism.

    • lifelogic
      Posted January 30, 2012 at 9:09 am | Permalink

      I rarely agree with much that Will Hutton comes out with, but on BBC news today he is absolutely right.

      Top bankers are hugely overpaid relative to performance, turnover, the skills needed and the profits actually achieved.

      • APL
        Posted January 31, 2012 at 10:19 am | Permalink

        lifelogic: “Top bankers are hugely overpaid relative to performance, turnover, the skills needed and the profits actually achieved.”

        Which means that everyone using the City to leveradge their own pay scales over the last fifteen years, are also hugely overpaid measured by all those same criteria.

        That would be local authority CEOs, all sorts of Quango CEOs, employees of the devolved assemblies and last but not least MPs.

        After all, looking at the state of the Public finances, MPs were responsible for that!

  4. Brian Tomkinson
    Posted January 30, 2012 at 8:55 am | Permalink

    I suggested your appointment as chairman of the RBS board the other day. I know you are capable and able to do the job but don’t know if you would be happy to do it.

    Reply: I do not think there is a vacancy. I do think there are a number of people with the financial and Chairman/CEO skills who could do the job if needed.

    • lifelogic
      Posted January 30, 2012 at 8:54 pm | Permalink

      There is no shortage of people who could do the RBS job it is not hard to say “no you cannot have a loan or renew your overdraft/loan and yes we do want all the money back now please – you will just have to put all you plans on hold and sell your assets now.”

      Just an answer phone message saying this , lots of people typing redundancy notices and a few lawyers would surely do what they are doing efficiently. You could also save money on those satirical “helpful banking” Natwest adverts.

  5. Nick
    Posted January 30, 2012 at 9:05 am | Permalink

    f the current Board does not want to do this, then there are plenty of able people who would happily go in and do it for them, for less pay.

    =========

    Three people all on half the pay of Hester doesn’t make savings.

    • uanime5
      Posted January 31, 2012 at 1:50 am | Permalink

      It does if they don’t get bonuses.

  6. Nick
    Posted January 30, 2012 at 9:06 am | Permalink

    Now about rewards for failure.

    Why is Gordon Brown and other Labour ministers such as Ed Balls being paid for being an ex PM and and ex ministers etc?

    That’s a reward for failure.

    Are the Condems going to take a leaf out of Labour’s book and cut these perks?

  7. alan jutson
    Posted January 30, 2012 at 9:12 am | Permalink

    I think if I had been Mr Hester, I would have released a press statement which outlined the terms of my contract first and foremost, then I would have outlined the way that I had met all performance criteria in the contract (to earn the bonus).

    Then I would have explained that I had already offered to give up 40% of my entitlement.

    Then I would have either resigned, taking payment in full.

    Or

    Would have forgone this years payment, but stated that next years bonus would be taken in full, if targets already agreed, were met.

    The above assumes his contract covers such bonuses, and is not made up on the hoof each year.

    I wonder how many MP’s would be prepared to give up payment against contract terms ?

    The real problem as you outline John, is the way the original contract was written.

    So many incompetent people seem to write so many rotten government contracts.

    Sir Fred Goodwins Retirement and leaving package.

    Aircraft carriers.

    NHS computers.

    EU Agreements.

    Just face it, politicians get the run around every time, when negotiating with commercial type organisations or businessmen.

    • lifelogic
      Posted January 30, 2012 at 8:37 pm | Permalink

      It it not so much that they get the run around they just do not care about the contract – after all it is not their money so why bother to upset the recipient.

    • Disaffected
      Posted January 30, 2012 at 9:49 pm | Permalink

      I agree Alan. How about minister collecting a tax free £20,00 for leaving the Treasury. They already get paid as a minister and those who left the country bankrupt ie Labour still got theirs and declined to give it back!!

    • uanime5
      Posted January 31, 2012 at 1:56 am | Permalink

      Hester’s contract doesn’t entitle him to a bonus. Also under his command RBS’s share value was reduced by £1.5 million and he didn’t meet his target for lending to small businesses, so I’d have to say that he did not fulfil the criteria needed to obtain a bonus.

      Also it’s almost impossible to create a criteria in a contract in 2009/10 for a bonus that will be paid in 2012 based on 2011 actions.

      • alan jutson
        Posted January 31, 2012 at 11:26 am | Permalink

        Unanime5

        Clearly you have no first hand knowledge of contracts, otherwise you would be aware that you are spouting absolute nonesense.

        Employment contracts can contain all sorts of terms and conditions, including possible bonuses, share options, termination entitlement, pension contriburtions as well as reasons for incentive payments, there is usually a clause for each side agreeing to depart on a mutual basis as well.

        I have no idea what was in Mr Hesters contract, and I would suggest you do not either.

        If you have a copy of the contract then please publish it, and I will happily make a more detailed comment on its contents.

  8. JohnOfEnfield
    Posted January 30, 2012 at 9:15 am | Permalink

    Hmm. What a mess.

    I must agree with you on how we got here & that the way out is to de-nationalise RBS & LLoyds (and the rump of Northern Rock) asap. Heaven knows what it will do to our National Debt though – surely Darling’s great Device was to trade his way out of the bad debts that these banks have incurred. Will anyone buy these banks now if the toxic debt is not taken on by the taxpayer?

    I also cannot help feeling that Labour have, in their gloriously inflammatory politics-of-envy, turned their back on the aspirational classes for ever. They are not going to be able to return from the position in the Marxist (from each…etc) wilderness that their leader’s current policies are taking them.

    For example:

    1. Whilst we are attacking “successful” people; is there any chance of Parliament debating the inflated incomes of premier league footballers?

    2. How does this discussion fit in with the row over a cap on benefits set at 140% of the average income of someone in work?

  9. Robert K
    Posted January 30, 2012 at 9:18 am | Permalink

    I agree with your analysis of what should happen, but it is also worth flagging the mealy-mouthed, spineless way this thing has been handled.
    Hester signed a contract to do a job of work. Part of that contract would have been a discretionary bonus. The remuneration committee of the board would, presumably, have decided what an appropriate bonus would be. The main shareholder, i.e. the government, is perfectly entitled to overrule the remuneration committee. Indeed it could sack the entire board if it wanted to. Instead of this, it stirs up public villification of Hester, threatens a debate in the Commons and in effect forces him to hand back money that the company decided he was entitled to rather than take an executive decision impose it. It’s a typical example of how the government wants to have its cake and eat it, whilst being quite happy to allow an executive to be flayed in public.
    If that’s the way Parliament likes to bare its teeth, I’d hate to be the next person in line to be bitten.

    • uanime5
      Posted January 31, 2012 at 1:59 am | Permalink

      The problem is that this isn’t what happened. Cameron and Clegg offered no objection to these bonuses and refused to sack the remuneration committee. It was only due to public outrage and Labour’s motion that Hester decided to forgo his bonus.

  10. Brian A
    Posted January 30, 2012 at 9:23 am | Permalink

    You are right that RBS should not have been nationalised, however, given that it is now largely taxpayer owned surely we have the right to expect top quality management in place to get it back on track. It is generally agreed that Stephen Hester is the man to do this so he should be paid the rate for the job, for if he succeeeds so does the taxpayer when RBS comes to be sold.

    The Government has allowed itself to be out-manouevred by Labour and some Lib Dems on this in the name of a more generalised attack on the rich and succcessful. The Government should be more robust in getting across the principle of rewarding success (partial so far in the RBS case, profits up, but share price down) and paying the going rate. Can you imagine the prospects for success of a Premier League team wanting a new striker, but only being willing to pay him a League 2 salary? The huge financial rewards in sport, entertainment, and indeed finance, arise from a tournament system where many compete but relatively few win the big prizes. Those seeking more predictable salary outcomes should look for careers in, for example, medicine, teaching and the public sector more generally.

  11. Disaffected
    Posted January 30, 2012 at 9:31 am | Permalink

    It is not for the state to set pay awards. It is in Cuba, North Korea and alike but not here in the UK. Mr Hester was asked to do the job by the previous Labour Government, he did not apply for it. The Labour government set the terms of his contract and what was expected from him. As far as I can tell, he is doing just that. It will take time because of the sums involved just like the current government clearing up Labour’s debts.

    More importantly why are the politicians not getting their own house in order. Politicians do not have any right or moral authority to offer an opinion. Pervasive greed in every corner of Westminster and promises by all parties three years ago to clean it up- When is it going to happen???? The failures of the current government on its pledges by both parties is astonishing. If it was not for a weak opposition it would be in trouble. If Labour offered an in out referendum on Europe the coalition would be in trouble. Your suggestion has been advanced before and is a sensible one, the Government are not listening. They are listening on Europe, the bail outs, growth, taxation so n and so forth. Inexperienced adolescents without a clue what to do.

  12. Hamish Hossick
    Posted January 30, 2012 at 9:31 am | Permalink

    It is perfectly simple, it doesn’t matter in the slightest if Hester et al were given the wrong job, they were given a job and a contract detailing the terms of the remuneration for that job. If the job has been done, then a bonus becomes payable and very few of those commenting in the media have the slightest interest in properly evaluating Hester’s performance.

    Perhaps there are those who would take the job Mr Redwood proposes for less pay, but it is highly likely if they are qualified to do the job, they will already be earning more elsewhere and their pay will not be subject to political whimsy. Why on earth would they take the job and expose themselves to the hectoring of the baying mob, whipped-up by irresponsible, sensationalist media and dishonest politicians?

    • Gary
      Posted January 30, 2012 at 3:32 pm | Permalink

      Actually , I think Mr Hester’s case is a convenient distraction which the other banks must be relishing. The larger issue is that we have a parasitical banking sector in general who are ALL still alive because of taxpayer subsidy. Ongoing in the form of QE, overt or covert. What needs to happen is that they all promptly need to have their books valued at market, reorganised and where necessary let go. Certainly ,including the ones under govt control. A govt with honest intent would make this the priority. Then, under free market conditions if the management wanted to loot their banks for their own reward , they would soon be forced to cease to trade. There is no regulator as tough and fair as the free market, a market which is currently not allowed to do its job.

  13. Disaffected
    Posted January 30, 2012 at 9:35 am | Permalink

    Parliament needs to bare its teeth on the pervasive greed by politicians at Westminster. It needs to get rid of the parliamentary commissioner role and create a body that is truly independent so the public has confidence in it. The lack of moral fortitude by Cameron, Clegg and Miliband is astonishing. They do not have a clue.

    • Alan Wheatley
      Posted January 30, 2012 at 6:18 pm | Permalink

      In the same vein that remuneration committees would be better responsible to the shareholders rather than the board, should not the the remuneration committee for MPS be responsible to their “share holders”?

  14. oldtimer
    Posted January 30, 2012 at 9:36 am | Permalink

    I think that Mr Hester and the RBS board should now consider whether they can fulfill the terms of reference under which they thought they were operating. Given the prospect of the HoC vote they have good reason to resign en masse. It will be impossible for them to function with MilibandE as a back seat driver, threatening HoC votes every time they did something that he did not like. It would also give the present government the opportunity to reset the terms of reference and compensation, for both a new board and CEO, they you desire.

    • oldtimer
      Posted January 30, 2012 at 9:37 am | Permalink

      Sorry about my typo at the end. It should read “…that you desire.”

  15. Richard1
    Posted January 30, 2012 at 9:36 am | Permalink

    It is incredible that no interviewers eg on the BBC ask Milliband, Umunna and Co why it is we are in this absurd position with RBS (& Lloyds) in the first place. Labour took the decision to pump in £70bn of taxpayers money with no due diligence into insolvent institutions. The Labour Govt could and should have insisted on a Bank of England-led restructuring with depositors guaranteed & not pumped in equity at an artifical market price. Labour wasted £70bn of our money, put us on the hook for the whole balance sheet and set up contracts with the boards pursuing the fiction that these banks were viable in their current form. Mr Hester’s deal reflects the Brown fiction that the bail out was necessary & taxpayers will receive a return on their money. Time to recognise the truth. Labour is to blame for this, not Stephen Hester.

  16. lojolondon
    Posted January 30, 2012 at 10:22 am | Permalink

    John, this is so wrong!

    In a capitalist system, the government has NO say over private business, and so it should remain. In old Russia and still today in Korea, North Vietnam, Cuba etc. government has a say over what businesses pay their employees. That is not how our system works or what we want.

    It is deeply unfair that Hester has been pressured to reject this payment, especially when you see what Fred Goodwin took out of the same company!

    Hester took over running a basket case business, and HIS REMUNERATION WAS OVERSEEN, AGREED AND SIGNED OFF BY THE ULTIMATE HYPOCRITES – LABOUR!!

    Cameron and the meddlers need to focus on the MASSIVE overpayments in the public sector – Local councils, NHS Trusts and ‘leaders’ of every type of quango, including the BBC are on over 250k. No wonder local politicians do not want to become MP’s – they can’t handle living on half the salary! Not to mention the millions paid to the directors and thousands of managers in the BBC, naturally that never makes the headlines!

    Cameron has the remit and the power, but not the courage to act in the public sector, where it is desperately required.

    That too will expose the BBC and the Guardian, howling loudly when companies spend money on ‘executive’ pay, but hypocritically remaining silent on the massive waste of public money in the public sector.

    • BulloPill
      Posted January 30, 2012 at 4:40 pm | Permalink

      But can you count RBS as a private sector business, when, following the bailout, it is largely owned by the State?
      I don’t know why any bonus is on the table, anyway. RBS is not worth what it was when we tax-payers were forced into supporting it, and I don’t see us getting anything like our money back. Ever.
      Having telephone-number salaries and perks is one thing, and can be defended in a free market when based on success. But awarding mega-money, via “you scratch-my-back and I’ll-scratch yours” remuneration committees, for failure is utterly wrong, and brings enterprise into disrepute when it becomes the media’s cause du jour.

      • A different Simon
        Posted January 30, 2012 at 6:48 pm | Permalink

        Given that we’ve got ZIRP to subside all banks through their own self-inflicted disaster I think you’d have to say very few of them are private enterprises .

        It’s clear they’ve achieved regulatory capture to the extent where it’s difficult to detect a boundary between the banks and govt .

        The politicians consistently act in the interests of the banks even when it is contrary to the interests of the electorate .

        It was save the banks or save the economy and as we are seeing from the deteriorating growth and employment figures they chose the wrong one .

    • Bazman
      Posted January 30, 2012 at 6:39 pm | Permalink

      It’s not a private business after the taxpayer bailed them out.

      • APL
        Posted January 31, 2012 at 9:52 am | Permalink

        Bazman: “It’s not a private business after the taxpayer bailed them out.”

        Good Lord, I agree with Bazman.

        • lifelogic
          Posted February 6, 2012 at 9:30 pm | Permalink

          He has his moments.

  17. Josh
    Posted January 30, 2012 at 10:24 am | Permalink

    The contract was stupid but it was a contract nontheless: it is a dangerous precedent. When the state decides it wants to renege on contracts because of a concerted media campaign, then where will it end? Are all private sector contracts to be subject to ‘the common good’.

    What about the lost tax revenues from this bonus? To borrow a favourite leftie slogan: how many nurses could we have employed with the £500,000 tax receipt?

    • sm
      Posted January 30, 2012 at 9:48 pm | Permalink

      If you can see inflation as a stealth tax,then you can see it applies retrospectively. You can then see how contracts and promises can be ‘defaulted’ or amended retrospectively by sovereigns- even Greece has this nuclear option.

      QE/ZIRP policy is to support and recapitalize our banks retrospectively devaluation and inflation of essentials is the result, that is the policy.

      Governments have these powers and some abuse them and some use them carefully.

    • uanime5
      Posted January 31, 2012 at 2:06 am | Permalink

      You do realise that shareholders own the company, giving them the right to fire employees and renegotiate contracts.

      Given that the bonus was in shares no tax would have been paid on them until they were sold. I believe the tax on the sale of shares in lower than the tax on being paid a salary of similar value.

      Reply: Do not take tax advice from this contributor!

  18. Adam5x5
    Posted January 30, 2012 at 10:32 am | Permalink

    I am curious as to what a commons vote would have achieved.

    Surely if he has a contract stating he was entitled to this bonus, a commons vote wouldn’t have made a jot of difference? Or would it have just been a statement of disapproval from the commons?

    Could you enlighten me please?

    Reply|: The Board would I suspect have felt they needed to respond to the anger of their main shareholder, or the government would have to have taken action.

    • Adam5x5
      Posted January 31, 2012 at 10:23 am | Permalink

      And what action could the government take?

      I didn’t think it was possible to retroactively change a contract once it had been signed – otherwise it’d kind of defeat the object of having contracts in the first place…

      The board could refuse to renew the contract when it ended, but surely if they just refused to pay the bonus they would be in breach and the employee could sue.

      I’m curious (and a little alarmed) that the government/commons seems to think that they have the power to alter contracts at a whim…

      At least – that’s the way I’ve read it. I could have gotten the wrong end of the wrong stick.

  19. Barry Sheridan
    Posted January 30, 2012 at 10:32 am | Permalink

    So a top banker wrestling with a gigantic mess created largely by politicians does well but ends up facing pressure from the same group mainly responsible for the disaster to forfeit what he has legitmately earnt. Contrast this with the so called sporting world of football where quite mediocre players earn much more without a hint of complaint. How ironic, but so British.

    • A different Simon
      Posted January 30, 2012 at 3:43 pm | Permalink

      “where quite mediocre players earn much more without a hint of complaint.”

      You don’t get mediocre players earning £20,000/wk .

      The first team squads of the top two divisions in the UK comprise less than 1000 players .

      Less than half of these players are British .

      So at best we are talking about the top 500 people from the male half of the 18 to 35 age group in the UK . i.e. the top 500 out of approx 7 million people or 1 in 14,000 men within the age group .

      Of those perhaps half , ie 250 make as much as £10,000/wk and perhaps 175 as much as a million pounds a year .

      I bet Goldman Sach’s alone has more than 175 British workers making more than 1 million a year in London .

      I’m not claiming the average Goldsman Sachs investment banker could do the job Steven Hester has been charged with but evidently investment banking skills are not as uncommon as professional footballing skills .

      One thing the financial services sector should learn from footballers is remaining in touch with society . If they did this they might think twice before treating it with disdain as they do .

      • Mark
        Posted January 30, 2012 at 8:26 pm | Permalink

        I’ve not seen any reports of footballers remaining in touch with society – unless you mean having their arms round the waists of scantily clad females in expensive nightclubs.

        • A different Simon
          Posted January 31, 2012 at 7:55 am | Permalink

          You see what you want to see Mark .

          These guys do a huge amount in the local community , hospitals , schools etc .

    • Electro-Kevin
      Posted January 30, 2012 at 4:20 pm | Permalink

      Barry – Or worse still – BBC football pundits earning a million a year for one hour a week’s work.

      I’d jack it in if I were Mr Hester.

      • Adam5x5
        Posted January 31, 2012 at 10:26 am | Permalink

        Daniel Radcliffe’s earnings in 2009 were $40m.

        Where’s the outrage at that?

        Someone is in charge of a multinational corporation which is one of the foundations of society and incredibly complex, gets 1m sterling – causing uproar.

        Some numpty pretends to be a wizard in front of a camera for 2 hours and gets $40m…

        Bit back to front methinks.

        I’ll start listening to these occupy people when they start camping outside Pinewood instead of LSX.

        • Adam5x5
          Posted January 31, 2012 at 10:28 am | Permalink

          *Some numpty pretends to be a wizard in front of a camera for 2 hours and gets $40m… not a peep of protest.

  20. Matt
    Posted January 30, 2012 at 10:33 am | Permalink

    Lack of competition among banks has gone from the front pages – yet it is a factor in holding back a recovery.

    Clients with good trading history and order books are finding it difficult, or not possible to finance working capital, as they once did. I see many small firms just plodding on going nowhere, the directors on a treadmill as they have pg.’s that they don’t want to crystallise.

    Your plan to split the state bank into its old name sections – RBS, Coutts and NW and have them raise capital in the city, then compete for business, is a top idea – can’t understand why the government don’t take it up.

  21. Damien
    Posted January 30, 2012 at 10:43 am | Permalink

    Anyone who read your blog last week could see this was not going to be swept under the carpet yet as Vince Cable said in the commons the bonus decision was taken by those “above my pay grade”. Why did they expend so much political capital unnecessarily and who is advising them?

    I completely agree that we need to urgently agree a plan to split the bank up. Currently the taxpayer is a reluctant speculator in the fortunes and whims of the RBS board yet as this debacle has shown we have no influence over even the smallest decisions of the board. The country cannot be held to ransom and we need to have guarantees in future that the largest shareholders have the largest say.

  22. backofanenvelope
    Posted January 30, 2012 at 10:53 am | Permalink

    Mr Hester had a contract. If as you say “Board of RBS was set the wrong task and given the wrong remuneration”, then Mr Hester shouldn’t be only person wearing a hair shirt. What about the politicians in charge at the time? What about the politicians who have sat in Whitehall for three years and not reviewed his contract and task? They are all sat fat and happy in parliament.

    • A different Simon
      Posted January 30, 2012 at 3:49 pm | Permalink

      The Guardian will say that the public sector workers had a contract specifying a gold plated pension and that the Govt has reneged on it .

      I don’t buy that argument myself but that is what they will say .

  23. lojolondon
    Posted January 30, 2012 at 10:54 am | Permalink

    John, on an unrelated matter, I am concerned at the stifling of free speech by the secretive ACTA law that has being signed off by parliament – a law that means that web hosting companies could be legally liable for material that was copyright being published on their pages.

    So for example, if I cut a passage from a newspaper and posted it here, you and the hosting company for this blog would both be guilty of an offence, and under the agreement, it could be PUNISHABLE BY EXTRADITION!!

    Well, of course they are SAYING that won’t be the case, only in the direst circumstances, and that will not apply to most people, etc, etc, but the fact is that is what the act says, and we have signed it.

    http://www.zdnet.co.uk/news/networking/2012/01/26/uk-signs-acta-as-activists-urge-resistance-40094914/?s_cid=115

    • uanime5
      Posted January 31, 2012 at 2:10 am | Permalink

      What’s worse is that Internet Service Providers (ISPs) have to screen everything sent through them to ensure it doesn’t contain copyrighted material. This is like asking Royal Mail to read every letter and open every package to check that it doesn’t contain illegal items.

  24. George
    Posted January 30, 2012 at 10:54 am | Permalink

    Let’s just float off RBS by way of a mass share offer to every household in the country. Get a bit of popular capitalism going.

  25. JimF
    Posted January 30, 2012 at 11:08 am | Permalink

    Spot on. And full marks to the Labour Party for realising the error of their former Chief Exec in nationalising the Bank and giving such a generous contract for short-term failure. Why should Hester be rewarded whilst the shareholder keeps on paying???

    But dealing with the immediate matter in hand your man George Osborne says that executive pay is no business of the 83% shareholder whereas he wants me as a 0.00001% shareholder in say Barclays to have a say in their executives’ pay.

    Doesn’t stack up does it?

  26. JimF
    Posted January 30, 2012 at 11:17 am | Permalink

    Infact, RBS could be held up as a model for the future- no crony capitalism, transparency and no rewards for failure.

    Transparency in executive pay and contracts, and in the task which they’re being set. Let’s see this government walk the walk and not just talk the talk.

    The alternative is to just carry on in the Gordon Brown mould of spin, deceit, hiding the truth and backing welfare claimants and the public sector, including these characters at RBS.

  27. albion
    Posted January 30, 2012 at 11:40 am | Permalink

    John Redwood proposes to break up and sell off RBS.
    All very well but what about RBS mountain of toxic assets, things like loans to commercial property developers and private equity firms which Mr Hester has been busy writing off and are therefore likely to be a difficult sell ?
    Surely there is only one answer to this question – transfer them to UK Asset Resolution Ltd where they will join other toxic financial junk such as the £75bn worth of Northern Rock and Bradford&Bingley ‘risky mortgages’, wonderful financial products like 125% mortgages, self-certified mortgages, interest-only mortgages and buy-to-let mortgages.
    I regret that john Redwood chose not to mention this inconvenient little fact unless of course he is certain that the great British housing market is set to boom again soon !
    Please do tell us !

    Reply: We own all the toxic and good debts of RBS at the moment. I have always said shape and sell what we can.

    • Gary
      Posted January 30, 2012 at 3:41 pm | Permalink

      As to the toxic load that cannot be sold , which is probably the vast bulk of the debt , there are only two options :

      1. write them off
      2. inflate them away , using savings and pensions as sacrifice.

      One is an honest free market way , the other is a dishonest theft from prudent people. Guess which path we have apparently chosen ?

  28. outsider
    Posted January 30, 2012 at 11:53 am | Permalink

    The outbreeak of hysterical self-righteousness over past few days has been undeserved bad news for Mr Hester, for RBS and for all its shareholders. They remind me of why France could ( and still can) run state-controlled industries in the national interest but we just politicise them.

    Given all the signs known in advance, The Remuneration Committeee of the RBS board has not done well by making their chief executive, who has no blame for the fall and seems to be doing an extremely hard job reasonably well, the hated symbol of what is derided in the financial sector.

    Projecting from the latest accounts, the four members of this committee, all non-executive, seem to be paid a combined £500,000 in directors fees, including roughly £30,000 each to serve on this committee. They also enjoy the benefit of costly advice from outside pay consultants from the world’s leading accountancy firm.
    I do not envy them their tasks (which run a lot wider than Mr Hester’s bonus) or their fees. But with these resources plus a little common sense and awareness, they should have done better than expose their chief executive to political and public hostility and leave him with no bonus. Yet we have heard nothing from Penny Hughes, a post-Goodwin director from outside the sector who chairs the committee and is normally quite happy to take paid speaking engagements.

    Mr Hester will do well enough on his existing share options if can continue to pull the bank round but it is hard to imagine how the RBS board and our politicians could have given him a greater DISincentive to relish his work to that end today, or in the next few months.

    • outsider
      Posted January 30, 2012 at 12:16 pm | Permalink

      PS: If Mr Hester had been awarded another block of share options exercisable at, say, 50p (double the current share price), that would have been a good incentive and attracted little outrage. But that is not the current orthodoxy in the tick-box “remuneration community”.

  29. BulloPill
    Posted January 30, 2012 at 11:58 am | Permalink

    What a shame our Parliamentarians don’t bare their teeth on behalf of their voters more often, then, if results can be shown so rapidly.

    Where are the bared teeth in relation to the billions of our money poured, against the majority’s wishes, into the bottomless EU pit?

    Maybe the teeth that could be bared much more often than hitherto have been too busily engaged in the Members’ Dining Room, where our fearless, brave representatives have to struggle with un-stacked chips on their taxpayer subsidised plates?

    • Martyn
      Posted January 30, 2012 at 5:51 pm | Permalink

      It is not just the MPs who have to struggle with un-stacked chips subsidised by the taxpayer – in the past I have often lunched exceedingly well for around £4 in civil service restaurants, for example in the MoD Main building. Good fare at low cost and no need to even leave the building.

      There are probably more subsidised restaurants in the larger civil/public service buildings than we know of, or what what the total cost is to the taxpayer.

  30. sm
    Posted January 30, 2012 at 12:12 pm | Permalink

    How banks broke the social compact….

    Still waiting for government to allow capitalism to deal with the too big to fail…no doubt we will wait until the people are pauperized (a la greece) or the banks are made good(fat chance while subsidies flow out as distributions).

    The B of E should move to control -wages,salaries and distributions until we have full confessions,restructures,solvency, profitability. Some limited retrospective legislation may be required and is justified for economic and social stability.

  31. Demetrius
    Posted January 30, 2012 at 12:19 pm | Permalink

    The fuss has been much overblown, maybe our politicians are too busy to check out the details. In the meantime a rather bigger issue has crept in under the radar and nobody is picking up the implications.

  32. Mark
    Posted January 30, 2012 at 12:31 pm | Permalink

    The first task was surely to identify and eradicate those at RBS who shared responsibility with Fred Goodwin for making it bankrupt to the tune of the need for a £45bn equity injection: such people are an unacceptable risk to any successor organisation(s). The second task was to conduct an honest appraisal of the bank’s assets and the risks in its liabilities so that proper business plans could be formulated.

    A series of demergers of units that were tainted with unknown balance sheet problems and lavishly leavened with employees who had driven the bank to the arms of rescue would not be a good solution. It would be tantamount to taking cuttings from a currant bush with big bud – and simply spread the disease throughout the garden. Only by first pruning out the canker can healthy cuttings be produced.

    Politicians at all levels and from all parties – from the EU and POTUS to ordinary MPs – fight shy of the need to recognise and tackle the twin problems of the banking sector: property bubbles, and sovereign debt bubbles. When there are plans in place to deal with those, the problems of banks can be resolved and the creation of a positive banking environment for the future entailing more competition can proceed with some hope of success.

  33. zorro
    Posted January 30, 2012 at 12:37 pm | Permalink

    Mr Hester’s alleged bluff well and truly called…..I trust that he hasn’t resigned with his Board yet after having to decline his bonus. Oh well, at least we’ve saved some money then.

    Somehow, I doubt that Mr Hester will propose splitting up RBS anytime soon, although it would be the right thing to do. As you suggest, it will need a transitory management team to enact this solution.

    John, hypothetically speaking, how would you have voted in the House regarding the threatened amendment motion?

    zorro

    Reply: I was against both the remit and the bonus and would have voted accordingly.

  34. Tim Robson
    Posted January 30, 2012 at 12:48 pm | Permalink

    Hi John

    Fancy a little secondment at RBS ?

  35. RDM
    Posted January 30, 2012 at 2:23 pm | Permalink

    Well said, it was so obvious, even at the time.

  36. NickW
    Posted January 30, 2012 at 3:09 pm | Permalink

    How to tackle Banker’s pay.

    Withdraw Government depositor guarantees for Banks which continue to encourage extreme risk by excessive pay and bonuses.

    It would be very rational and very effective.

    • Mark
      Posted January 30, 2012 at 8:15 pm | Permalink

      That’s a game of chicken long lost by governments who know that the bankers can create chaos.

  37. peter davies
    Posted January 30, 2012 at 3:31 pm | Permalink

    Whatever the details of the contract I think the most important thing now as JR says is for the major shareholder to task the board with breaking up the banks and selling bits off.

    The attention being given to a single persons bonus is a drop in the ocean compared to the £1 tn balance sheet of RBS – labour know they set up the contract, probably in haste so I think its politics thats coming into play here.

    I never understood why these banks were purchased in the first place, I would have been more inclined to have brokered a deal with the BoE to lend them the money to stay in business produced through through QE which they did a lot of anyway

  38. Barry
    Posted January 30, 2012 at 4:00 pm | Permalink

    John

    Well said. I recently retired from a lifetime in industry. I have a son who is a Vice President of one of the largest world banks. Talking to him reveals that the banks still seem to live in an age of non accountability that saw similar stunts with bonuses in the distant past in certain elements of our industry. Those businesses failed or mended their ways to provide incentives that are more meaningful measure of over and above achievement.
    There seems little change in the bank bonus culture. An industry in trouble normally stops bonuses….not so for banks. My son does not think there will be any significant change in the bonus culture for the foreseeable future because too many people have become locked into the notion that the high salary culture is essential to banking business. Put simply, he believes that banks will go on in the same old way because many bankers makes lots of money in the same old way.
    Sadly events appear to be proving him correct…. .

  39. Iain Gill
    Posted January 30, 2012 at 5:04 pm | Permalink

    Speaking as a RBS retail customer I have had to move my account from England to Scotland to avoid being transferred to Abbey (where I have had terrible service in the past), I value the RBS service 1) being able to ring the branch and being able to speak to a banker who understands stuff like complex foreign transactions and not some call centre battery hen or indeed some Indian call centre like many banks in the UK now 2) etc.
    We need to encourage good banks to provide decent service, rather like the old commercial union (shame thet got merged out of existance) i like banks not to make a drama out of a crisis.
    As far as retail banking goes RBS always ranks high for customer service and I would like to see that retained. I doubt the good people running that good service were responsible for the silly takeovers and so on which led to the financial bail out.
    Ah well

    • alan jutson
      Posted January 31, 2012 at 8:52 am | Permalink

      Iain

      Some close friends have also moved business/commercial accounts away from RBS as these were also going to be automatically transfered to another Bank with Spanish interests, which it seems has a rather poor reputation (if press reports are to be believed) for customer service..

  40. Alan Wheatley
    Posted January 30, 2012 at 6:27 pm | Permalink

    It would be nice to think that Mr. Hester is a patriot and is taking the long view. Subsequently, having done right by the country in relation to the task with which he has been charged the rewards will come later.

    He who can demonstrably turn RBS around would surely warrant top bonus.

  41. Lindsay McDougall
    Posted January 31, 2012 at 12:52 am | Permalink

    What course of action will yield the greatest revenue for the taxpayer when RBS is sold, whether whole or in bits? Is there any other issue?

  42. john elliott
    Posted January 31, 2012 at 8:39 am | Permalink

    The Hester debate is wrong because it’s based on envy. If every top company boss halved his/her salary tomorrow it wouldn’t give a penny more to the rest of us. Those who are complaining simply don’t want Hester to have it. Why? petty small-minded envy. In fact if all top bosses pay was capped it would probably mean that these companies would perform less well which would cost us all. Hester was given this money either because he is very competent or very lucky. neither of these are crimes.

    • JimF
      Posted January 31, 2012 at 11:31 am | Permalink

      No, I am perfectly happy as a shareholder for the management to share the rewards of success. However when the Company is worth less than it was when Hester signed the contract, there are no rewards for either shareholders or management, and shareholders are basically paying the guy out of their own pocket a bonus for failure.

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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