Sunday, 20 March 2011

RBS CEO to get £4.5 Million shares bonus

It's been more than a year since my last "angry" post about banks and bankers. In the UK the government knows that the general public is unhappy about the way that the banks escaped any penalty or punishment over the financial crisis that they helped bring on. Yet it has done little about it.

I was incensed to read about the huge shares option that the CEO (Stephen Hester) and senior managers of Royal Bank of Scotland have been promised - yet the bank (which is now 80% state owned) is still in the red. This means that the UK public are supporting RBS's debts at the same time that its managers are being promised rewards in the millions (in shares terms).

I emailed my local High Peak MP, Anthony Bingham (Conservative) about this and here's his reply (with typos retained - corrections in square brackets):

"With regard to bankers['] bonuses, I understand why people are so angry at huge bonuses. They are totally indefensible in the case of the state-owned banks, and I am pleased that the Coalition Government is limiting cash bonuses for RBS and Lloyds to £2,000. Shares bonuses are linked to the performance of a company in the longer term and as such as[are] more fitting incentives than short terms chas[cash] payments which bear no regard to the profitability of any decisions longer term.

The Coalition Government is putting the Bank of England back in charge, with a Financial Conduct Authority (FCA) to regulate business conduct. The Independent Commission on Banking - chaired by the highly experienced Sir John Vickers - will consider the structure of banking in the UK and competition in the industry. It will report later this year."

Let's unpack this:
  1. Mr Bingham seems to think that limiting cash bonuses to £2,000 is good enough. There is no mention of penalties. Surely bankers who have led their banks into debt should not only not receive any kind of additional rewards, but actually pay some kind of penalty? By the way, Mr Hester received a bonus of £2.4 million last year!
  2. He also feels that shares options are a fitting incentive, presumably because they are only paid out if the  objectives are met. Setting aside for the next point whether this is defensible or not, one wonders (a) what are the objectives being set, and (b) how effectively will performance actually be monitored? By the time 2014 comes around (the RBS shares would be paid out over a three year term) will this be remembered or challenged by the government? I hope I'm wrong, but somehow I doubt it, and this Independent article makes no mention of penalties when it states "Mr Hester's windfall could be much less than the £4.5m figure if he does not meet his targets but could be higher if he meets all his targets and the share price increases substantially."
  3. But is this even right? Should the senior bankers be being offered incentives amounting to millions of pounds worth of shares for doing what is afterall, their job? Their salaries are in the millions (Hester's is £1.2m), so is that not incentive enough? The government could argue it has no control over private banks, but this is not the case for state owned banks like RBS, so there is no excuse for allowing this to happen.
  4. He then goes on to talk about the Commission on Banking which will be chaired by Sir John Vickers. Reading about his past I have little faith that he'll come up with anything radical: he's clearly old school and old boy network!
In short the government are basically doing very little to penalise those who have caused the huge debts that the country faces. The measures they are putting in place may regulate things a bit more - and that in itself is interesting because it implies we can't trust the banks to self-regulate - but that's about it.
    If you share my views, write to your MP. You may get the same platitudes back that I did, but the more that people write, the greater the focus on this issue will remain. And just maybe things might change.

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