The Consequences of Hester's Bonus Debacle
Daniel Barnett asks whether there is any better reason not to work in the public sector than your contractual arrangements being at the behest of political caprice?
30 Jan 2012, 11:00
Hester off to the private sector?
Stephen Hester, chief executive of the Royal Bank of Scotland, has waived his £963,000 share bonus.
He’s waived it for one reason only. Political and media pressure, in particular the decision by the opposition to push for a vote in the Commons on his bonus. The government was caught between backing the RBS chief, whom they feel is doing a good job, and calling for pay restraint at the top.
But this is a short-sighted, own-goal by politicians. Pressuring Stephen Hester to waive the bonus is not going to reverse unemployment, nor put bread on people’s plates. Broken Britain isn’t fixed. And Stephen Hester still receives substantial sums in remuneration – neither his £1.2m basic salary, nor the alleged £6m payment which will fall due under his 2011 Long-Term Incentive Plan if RBS shares rise by a sufficient amount over the next three years, are affected.
We have a simple choice with RBS. We can run it on a commercial basis, expect it to make a profit, and pay its chief executive officer the sort of salary which the market sets. Or we can run it to fulfill public policy objectives, possibly making a loss, but sending a nice message out there that pay restraint is a good thing. But we can’t do both at the same time.
Mr Hester was not responsible for the near collapse of RBS in 2008. That was Sir Fred Goodwin. Stephen Hester has presided over a reduction in RBS’s loan exposure by £600bn. Bashing bankers and business is the easy part. Politicians should try creating wealth. How many dishing out criticism have done it?
When he was appointed, a contract including a discretionary bonus was put in place. The remuneration committee of the bank presumably voted to award the £963,000 in shares as that bonus. It is perfectly legitimate for the shareholders of RBS (and the government owns 82% of the company) to call for a change of directors, or even vote down the remuneration package. But that should be done at a general meeting of the company, with formal proposals, debate, and a vote. Not from in front of a camera lens or in secret briefings to the press.
Still, although he’s probably done the right thing by waiving his bonus, given the media scrutiny, I wouldn’t have wanted to be Mr Hester last night as he came home for dinner. Imagine the conversation: ‘You’ve done WHAT???’
Comments (1)
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Quite right - this whole episode is a gold-plated reason for quality people not to work for the public sector. Whatever one thinks of the morality of the bonus culture in the banking industry, Hester had a contract, presumably freely entered into by both sides, that provided for the bonus under discussion. If the Coalition Government was unhappy with that contract - and they have made no mention of it in the months since the election, until now - then they should, through UKFI, have gone back and undertaken a renegotiation. That would have given Mr Hester the opportunity to agree to a more politically acceptable package, or to withdraw, no doubt with some 'compensation' for loss of office. To moan about the terms of a contract only at the point where it pays out as per the terms of that contract is naive at best, stupid at worst. And the airwaves and columns of the Daily Wail are not the best places to have such discussions.
To put political and moral pressure on an employee to forego part of the terms of a contract is the politics of the nursery; and it is sad to see the PM and cabinet ministers behaving as though they are still in the nursery. Caprice has no place in the Boardroom.
If I was Mr Hester, I would no longer have any desire to help the government get its investment in RBS back: I'd decline the bonus, resign, take most of the Board with me and set up shop somewhere else - where a contract is a contact and people entering into contracts do so in a grown-up fashion.
30/01/2012 11:48