Deep breath. I’m going to defend Stephen Hester’s bonus
First of all, let’s get the facts straight. Stephen Hester has not been awarded a cash bonus.
He has been awarded share options. These do not vest until March 2013 and March 2014 (50% for each date).
So, OK, presumably that is where the eyes of 90% of the population glaze over and they change channels. Here’s a definition of vesting:
When employees are given stock options or restricted stock, they often do not gain control over the stock or options for a period of time. This period is known as the vesting period and is usually 3 to 5 years. During the vesting period the employee cannot sell or transfer the stock or options.
So, (a) he can’t cash the shares in until 2013 and 2014. And (b) because they are shares, the value may go up or down during that period.
As a result of those conditions, Stephen Hester is, to an extent, locked into the fortunes of RBS. He has an interest in ensuring he does all he can to increase the value of RBS shares. So that’s an incentive for him to improve the performance of the bank.
I can readily accept that Hester has done a good job. He has, farnkly, stopped RBS going down the toilet.
The level of banking bonuses and salaries is obscene and morally reprehensible. But to start with a hairshirt approach (and yes I know he gets a £1million salary anyway but that is similar to others in a similar position) to just one bank leader is daft. It would result in a worse performance of RBS for the taxpayer. It would be cutting our nose to spite our face.
Reform, or reduction, of banking bonuses and salaries needs to be done across the world. It can’t be done in isolation in one bank.
Here’s the FT quoting the reaction of Boris Johnson:
RBS should be run “on public sector lines”, he added
Public sector lines? Absolute, unmitigated round sperical objects rolled in unlimited horse manure. If it is run on public sector lines it will end up being unsuccessful in the competitive world of banking. That would be a disaster for the taxpayer.
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7 Responses to “Deep breath. I’m going to defend Stephen Hester’s bonus”
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Burbler-in-chief
Very good post, Paul. I don’t have much with bankers, and reading the banking blog*, I’m pretty certain they’re not the kind of people I would enjoy hanging out with, but I feel more and more the need to defend them against unjust accusations. I’m glad I’m not along in that!
Or ‘alone’, for that matter.
Thanks
Oh and this is the banking blog I meant to mention in my comment:
http://www.guardian.co.uk/commentisfree/joris-luyendijk-banking-blog
Good post Paul, there’s an awful lot of hypocritical hand waving by politicians on this. As has been pointed out, the bonus is based on a contract agreed by New Labour and was 60% of what it could have been.
I think there’s a much bigger problem that the fuss about bonuses is hiding. I remember years ago listening to a talk by a recently retired finance director of Cadbury Scwheppes. He said that the UK and the US were heading for serious problems due to the increasing percentage of remuneration packages that were made up by equities. He said that this, coupled with the focus on maximising share holder value encouraged short-termism and was breeding a generation of executives who didn’t care at all about building long term value in their businesses.
On top of this we now have globalisation, which makes it virtually impossible for individual governments to regulate banks even if they wanted to.
I guess it’s too late to put the genii back in the bottle, but I increasingly wonder why we don’t just copy the policies of countries which are doing much better than us. For example, Germany’s social capitalism seems to be working a lot better than whatever it is that we have. Here’s a good piece on their approach to banking: http://www.bbc.co.uk/news/business-14887605
PS to be fair to politicians, they’re not all talking cock on this. I heard one P Mandelson last week saying words to the effect of ‘banking salaries have inflated to an obscene level but given the systems we have if anyone deserves a bonus it’s probably Hester for playing a big part in steering RBS away from disaster.’ So you’re at one with the erstwhile Prince of Darkness as well. Congratulations!
I don’t think you need to go that far.
My starting point is that Hester has a contract, and RBS has a legal requirement to honour this contract. The government cannot simply ride roughshod over the law just because a number of people don’t like it, as that would make everyone’s employment rights unenforcable.
It’s embarrassing for Labour that they’ve showed they have no respect for the law, particularly regarding a contract they wrote and signed off, because this gives millions of low-paid public sector workers reason to fear what Miliband might dream is popular. Government by whim is not acceptable.
As a private company RBS did and should have discretion over pay policy, but they also have a duty to act responsibily. They had every right to award a bonus, and the public has every right to be angry at the size and composition of it. Equally Mr Hester should be savvy enough to know this is a hot potato, and shouldn’t have needed cajoling to decline it.