The Royal Bank of Scotland took a decision recently, which has drawn many a criticism from all the sections of the financial markets. The decision was to award the CEO, Stephen Hester, a bonus of nearly a million pounds! Latest addition to the brigade of people criticising Royal Bank of Scotland’s decision are Ed Miliband and Boris Johnson. More than 80% of the bank is owned by the taxpayer and the Conservative Mayor of London, Johnson has asked the Government to step in and sort out the matter. The bonus is being described by all as utterly unacceptable.
After the bonus, RBS Chief’s net increase would be another 3.6 million bank shares apart from a basic salary that he gets of about £1.2m. The shares that have been awarded can be cashed in by Hester in the year 2014 and at present are worth £963,000. Miliband who is a Labour leader said that David Cameron has failed to deliver in accordance with the rhetoric that he gave regarding shareholder activism and the executive pay. He said, “It’s a disgraceful failure of leadership by the prime minister. He has been promising, for months, action against excessive bonuses, executive pay – and now he has nodded through a million-pound bonus. He has also been lecturing shareholders about how they need to be more active in holding executives to account. He owns, through the British government, 83% of the Royal Bank of Scotland. He must now explain, not least to the British people, why he has allowed this to happen.” Johnson spoke from the World Economic Forum in Davos, Switzerland and described the bonus as bewildering.
He added that this award must have been stopped by the ministers. Johnson further added in an interview with BBC, “The idea that this is not in the control of the government seems to me to be far-fetched. Stephen Hester is an able man, probably doing a difficult job, and his contract must have been drawn up, I guess, when he was appointed in 2008 under Alistair Darling and Gordon Brown. I do not know what they were thinking of when they drew it up that way, but it certainly seems to me to be right that the government should step in and sort it out. People will not understand how somebody can get a whacking great bonus like that when they are basically running a state-owned concern, and I am at a loss to justify it.”
Nick Clegg, the deputy Prime Minister said that it was Hester’s call whether to accept the award or not. He put the blame on the previous Labour Government for the inability of the Government to stop the payout. He said, “The chancellor and the Treasury have explained the frustrating realities about all of this, which is that if we ripped up the contracts which the Labour government had signed with them, or changed the arrangements of these arms-length taxpayers bodies that manage our stake in the banks, we probably, as taxpayers, would have ended up paying even more money.”