This is a tricky one. RBS, remember this is the bank that rewarded Sir Fred Goodwin so well, has now revealed a potential massive bonus for the chief exec who replaced him.
Stephen Hester cold find he ends up £10m better off.
Not surprisingly, unions are up in arms, and Vince Cable has managed to net himself some more airtime over the matter.
And yet, actually, this issue does raise some interesting questions.
Most of Mr Hester’s remuneration will be in the form of shares and will only be paid if the share price doubles over the next three years. Furthermore, and this is the interesting bit, RBS said that the award could be cut if it is felt that the performance of the RBS stock isn’t reflective of the company’s underlying results.
The point you need to bear in mind is that the UK’s taxpayers are shareholders in the bank. So, if the share price doubles we have all made a nice profit.
On the other hand, banks were rescued because they are essential for lubricating the economy. So, if they aren’t lending to business, why should their bosses be rewarded?
Then there is the issue of job cuts. 11,700 jobs have gone this year, so for those ex-employees it must smart a bit to see the new boss doing so well.
The Unite union is not happy. Graham Goddard, Deputy General Secretary, said: “Unite is appalled that instead of striving to save jobs in this state-controlled bank, UKFI is approving such an incentive plan… Staff and customers are sick of seeing senior bankers earn such huge financial awards.”
Vince Cable said the deal was “a reminder of the ludicrous levels of remuneration expected in top jobs in the banking sector.”
And yet, Mr Hester won’t be the best-paid employee at the bank. Bosses at subsidiary US units will earn more.
Maybe there are two issues we should factor in. First off, we have to make up our mind whether we want the banks we taxpayers now own to make as much profit as possible, netting the government more receipts down the line when they are sold. Or whether the banks should be run to help the economy, regardless of what that means to their P&L.
Secondly, is the three-year time-frame to judge Mr Hester’s performance long enough? If executive pay is going to reflect the long-term benefits they bring, it will take a lot longer than three years to quantify the value of their performance.
© Investment & Business News 2013