RBS chief turns down bonus amid outcry over payouts at rescued bank

Bank set to pay £1.3bn bonuses despite making loss in 2009
Decision puts more pressure on rivals at Lloyds and HSBC

Stephen Hester, chief executive of the Royal Bank of Scotland, has decided to turn down his bonus for 2009 amid a growing public outcry over the scale of rewards, piling further pressure on rivals at Lloyds Banking Group and HSBC to do the same.

Hester's attempt to defuse the row brewing around the bank, stoked yesterday by the business secretary, Lord Mandelson, comes as RBS prepares to pay £1.3bn of bonuses to its 22,000 investment bankers despite making a loss in 2009.

Hester is believed to have told Sir Philip Hampton, chairman of the state-controlled bank, that he will reject any bonus he is offered – possibly as much as £1.6m – on top of his £1.2m pay. Liberal Democrat Treasury spokesman Vince Cable described Hester's decision as "very sensible".

Eric Daniels, chief executive of Lloyds Banking Group, which like RBS is controlled by the taxpayer, now faces pressure to reject any bonus he is offered by the bank, which is expected to report losses of at least £3bn on Friday.

The top executives at HSBC, which has survived the crisis without taxpayer support, will endure similar pressure despite attempts by the bank's remuneration committee to win pay rises for the top team.

HSBC's remuneration committee meets this week after sounding out investors about pay rises of up to 40% for top executives. It will need to decide whether to ignore popular opinion and shareholders by forcing through the pay rises before next Monday, when HSBC will include full remuneration details in its annual report – the first major UK bank to do so.

The committee has been discussing pay rises for Douglas Flint, the HSBC finance director who appears before the Treasury select committee today, and chief executive Michael Geoghegan, who recently moved to Hong Kong. The HSBC management is understood to be reluctant to go to war with shareholders over a pay rise if significant major shareholders have strong objections, particularly when rivals at Barclays did not take their cash payouts.

The decision of John Varley and Bob Diamond, the top two executives at Barclays, to turn down their bonuses began the pressure on rivals at the state-controlled banks, Lloyds and RBS, which are making a loss.

Hester, who was parachuted in to replace Sir Fred Goodwin during the October 2008 bailout, still stands to be rewarded through a long-term pay scheme which is being drawn up and will be put to shareholders at the annual meeting in April. The 2009 long-term deal might pay out £9m if the share price, currently about 35p, tops 70p in three years.

Hester is concerned the politicisation of RBS will hinder his task of getting up to £54bn of taxpayer money invested in the shares back to the public. He had been in discussions with Hampton about his bonus even before Lord Mandelson urged him to think about the payment.

Mandelson said: "What I would say to RBS is this, and to their chief executive Stephen Hester, who is a rather strong and rather able man but whose performance and delivery has not yet been tested: if further down the line in years to come he has done well and he has turned round RBS he deserves something back for it and I would be the first to say so, but not now."

He added: "What we have said to them is that their priority is repairing their balance sheets and getting their capital back in place and lending again fully." Mandelson also seemed to indicate that the £1.3bn that RBS has proposed paying out to its investment bankers is likely to be sanctioned. "The bonus pool they have indicated is very much at the lower end of the banks," he said.

On Thursday RBS is expected to declare that the record loss of £24bn in 2008 has narrowed to about £5bn and that it has met many of the turnaround targets set by Hester, who has divided the bank into a core operation and a non-core business containing divisions that need to be sold off.

Hester has won support in some quarters – including investors at Standard Life – because, unlike bankers who were already in their roles when the crisis struck, he was brought in to solve the mess .


Jill Treanor

The GuardianTramp

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