RBS Chief Waives Bonus After Labour Seeks Parliamentary Vote

Royal Bank of Scotland Group Plc CEO Stephen Hester
Stephen Hester, chief executive officer of the Royal Bank of Scotland Group Plc. Photographer: Chris Ratcliffe/Bloomberg

Jan. 30 (Bloomberg) -- Royal Bank of Scotland Group Plc Chief Executive Officer Stephen Hester decided to waive his 963,000-pound ($1.5 million) bonus after the U.K.’s opposition Labour Party said it would ask Parliament to vote on the award.

Hester, 51, has been at the center of a storm since the announcement Jan. 27 that he would get a bonus for 2011. Britain’s biggest taxpayer-controlled bank has fallen 36 percent in the past year to about half what the government paid for its stake in the lender. Chairman Philip Hampton has waived his 1.4 million-pound stock award, and the government hopes the other board members also decide to forgo their bonuses, said a person familiar with ministers’ thinking.

Hester’s decision, announced late yesterday, should not be “just a one-off episode,” Labour leader Ed Miliband told reporters in Glasgow, Scotland, today. “If we don’t deal with this systematically, if we don’t deal with the issue of bankers’ bonuses in a proper way, then this sort of thing is going to reoccur.”

Prime Minister David Cameron, whose government holds 82 percent of the bank, was criticized for allowing Hester’s bonus, on top of his 1.2 million-pound salary, a week after he’d urged shareholders to hold down executive pay. The award comes at a time when unemployment is at a 17-year high, wages for many are being frozen and the economy stands on the brink of a second recession in less than three years.

‘Media Frenzy’

“The big question is whether Hester stays, as there is only so much one man can take,” said Shailesh Raikundlia, a banking analyst at Espirito Santo Investment Bank in London. “I don’t hear many investors complaining about his pay package. This is a media frenzy and it’s going to carry on for some time.”

RBS dropped 3.5 percent to 26.8 pence at the close in London for a market value of 29.5 billion pounds. The bank has gained 31 percent so far this year.

The government injected 45.5 billion pounds of public money into the lender at the height of the financial crisis, making it the costliest bailout of any bank in the world.

Hester’s award, whose value is based on RBS’s closing price on Jan. 25, was to have been deferred until 2014. He took a 2 million-pound bonus for 2010, his first since he replaced Fred Goodwin in 2008 following the government rescue.

John Hourican, who leads RBS’s securities unit, will receive as much as 5.8 million pounds as part of a 2009 long-term incentive award that vests in April. It is not known how much he may receive as a bonus for this year.

‘Be Responsible’

Other RBS employees must make their own decisions on whether to accept bonuses Cameron’s spokeswoman, Vickie Sheriff, said today.

“Reward for good performance in itself is not a bad thing,” she told reporters in London. “What they need to do is reflect the current times and be responsible. What we’re not going to be doing is micro-managing.”

Hester and eight other senior executives including Finance Director Bruce Van Saun received about 28 million pounds in shares last year. The payouts are subject to clawbacks if the bank underperforms.

Cameron was concerned that Hester might leave RBS if he was refused a bonus, a person familiar with the government’s thinking said on Jan. 27.

Foreign Secretary William Hague told the British Broadcasting Corp.’s “Today” program that Hester’s decision was sensible and welcome.

‘Very Important Job’

“Stephen Hester has to focus on the very important job he has to do -- getting billions of pounds of taxpayers’ money that was put into RBS back and that is the most important thing of all,” he said today. “We want him and senior management of RBS to get on with that.”

Hester has shrunk the lender’s assets by about 600 billion pounds to 1.61 trillion pounds by selling and closing units. RBS announced about 4,800 job reductions earlier this month and said it plans to sell or close its cash equities, mergers advisory, corporate broking and equity capital markets units. That will take total job losses at the lender to more than 33,000 since the financial crisis of 2008.

‘Common Sense’

“It was right for common sense to prevail and this massive bonus to be waived,” said David Fleming, national officer of the Unite trade union, which represents bank employees, in an e-mailed statement today. “There remains a long way for RBS to go in proving its credentials as a responsible organization, to its customers and also to its thousands of staff.”

The bank has struggled to increase profit after the European sovereign debt crisis crimped income from investment banking. Revenue at RBS’s global banking and markets unit slipped 29 percent in the third quarter from the year-earlier period, while profit for the overall bank tumbled 63 percent. The lender is slated to report full-year earnings next month.

Chief Secretary to the Treasury Danny Alexander said the U.K. government gave a “very strong steer” to RBS to reduce bonus settlements.

“We’ve used our influence to ensure that the bonus paid this year is less than half of that paid last year,” Alexander told the BBC’s “Sunday Politics” program yesterday. “You’ll see something similar when the RBS brings out its full bonus pool.”

The CEO of Britain’s second-biggest government-aided bank, Antonio Horta-Osorio of Lloyds Banking Group Plc, said on Jan. 13 he won’t take a 2011 bonus following his nine-week absence for exhaustion. The payment could have been as much as 2.39 million pounds, according to company filings.

To contact the reporters on this story: Robert Hutton in London at rhutton1@bloomberg.net; Gavin Finch in London at gfinch@bloomberg.net

To contact the editors responsible for this story: James Hertling at jhertling@bloomberg.net; Edward Evans at eevans3@bloomberg.net