Saturday, 28 January 2012

RBS: Hester's Bonus

Any road up so though but. This bloke Stephen Hester has been awarded a bonus of £963K of shares in the Royal Bank of Scotland (RBS) on top of his £1.2 million salary.  So this bonus is only worth something to him if and when he sells the shares. Should he ever claim welfare benefits, they will be counted as an asset nonetheless so his claim would not succeed, £16,000 being the upper limit for means-tested benefits (there's a sliding scale of deductions for savings between £6,000 and £16,000). 
What is not clear, however, is what Hester has done to earn a bonus whether in cash or shares. He's closed some branches; he's selling some to Santander; he's cut staff numbers and reorganised things here and there. But that's just part of his normal everyday job anyway. Surely a bonus should be related to having done something extra, above and beyond what you're being paid £1.2 million in salary to do in any case? *
I suppose now that he has the shares he has an incentive to increase their value or at least maintain it rather than allow the price to fall. So, in a sense, he has an incentive not to screw up - but he till gets his £1.2 million and he never had the £963K in cash anyway so it wouldn't be much of a loss when all's said and done. Hester still has his house in Holland Park, London; his 350 acre estate in Oxfordshire; and a chalet in Verbier, Switzerland so what's £963K?
Meanwhile, of course, we are told that if bankers don't get a bonus they will go elsewhere and deploy their inestimable talents to someone else's benefit. Fair enough, goodbye and good luck! There are 2.8 million unemployed in the UK - I wouldn't mind betting that at least one of them will have some idea how to close branches, reduce staff numbers and sell off assets and who will do the job for half what Heston is getting.
* Since Hester has been in charge, RBS has lost £3.6 billion in 2009 and £1.13 billion in 2010. Meanwhile his total 'remuneration package' has been £35.54m since joining the bank in 2008. That year, when the then Labour government bailed out RBS, Mr Hester was awarded £4.99m in restricted shares, forgoing pay and bonuses. In 2009, his package was worth £6.9m. In 2010, his total package rose to £8.16m. Last year, the total was £8.08m, including a long-term incentive plan (LTIP) worth £4.8m, bonus £1.66m and salary and pension contributions. For 2012, the total figure is £7.38m – including LTIP worth £4.8m, his bonus of £963,000 and £420,000 pension contributions and £1.2m salary. No doubt he'll get a Knighthood as well at some point.
Addendum: Hester has been persuaded by the malodour surrounding this episode to waive his £963K shares bonus. It seems this is more to do with the distraction it is causing for him and his pals than to an acceptance that he hasn't actually done anything very much to deserve the bonus. He will still receive the rest of his 'remuneration package' for the year, £6.42 million.

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