Stephen Hestor renders to the lynch mob

IronWolf

Graham_Devon wrote: »

I certainly hold some sympathy towards the argument that not giving him his bonus could seriously harm the bank (if he and the board decide to go).

BUT. What is the alternative? High up bankers hold the country and shareholders to ransom?

Everytime they get a bit of stick about their collosal renumeration packages, they threaten leaving and plunging the bank (and in this case, the country) back into a dire situation? How many threats of leaving have we had from bankers? It's wearing extremely thin.

But it's worth noting that a £1m bonus isn't very much, and is on the very low end of bonuses as far as FTSE 100 companies go.

For example the CEO of GlaxoSmithKline was paid over £5m in total last year, and even THAT is on the low end of CEO pay. GSK is worth around £70bn. I've seen companies worth around £200m paying CEOs £5m, now THAT is excessive pay.

Part of the problem is with the structure of performance related pay (PRP), during the last 10 years CEO's have been rewarded for "empire building" that means costly aquisitions to increase EPS to meet targets. Expansion isn't always in the interests of the shareholders if the board aren't paying a reasonable price for acquisitions, but that doesn't matter when you just have EPS targets to get bonuses.

The best PRP structures I've seen not only link to EPS targets but also Return on Capital Invested.

A lot of bonuses nowadays are also paid in share options, which means if the company goes down their bonus becomes worthless. I still think its important for CEOs and Chairman to have a substantial portion of their wealth invested in the shares of the company though, but even THAT doesn't mean the board will be competant, e.g. Enron.

ash28

wotsthat wrote: »

Yes he did know the score. Part of the score was that he'd be receiving this bonus which due to media frothing he now feels he has to decline.

Not only that but his employers have been less than supportive.

I'd be looking for a new job - regardless of whether he's worth the money or not he could easily earn more money elsewhere.

Let's leave the bank to be run by politicians, newspaper editors and armchair economists - what could possibly go wrong?

I agree with a lot of what you say and have no problem with people receiving bonuses for a job well done or targets met - who ever they are.

I guess it depends on what was in his contract regarding measures of success. Share price down 40%, 33k jobs lost......didn't meet targets for lending to small business.....

Howeve, the government with an 85% shareholding could have voted down the bonus payment at the AGM, or could they?

And in the scheme of things the £1m is peanuts.

Graham_Devon

wotsthat wrote: »

Yes he did know the score. Part of the score was that he'd be receiving this bonus which due to media frothing he now feels he has to decline.

It wasn't in the contract. The contract stated the board had discretion over a bonus.

No bonus amount was set. And secondly, a bonus is just that. A bonus. I doubt the contract said "your minimum bonus will be..."

Labour are pretty stupid. But I don't think they are stupid enough to start voting in a motion against a contractual obligation written into a contract.

IronWolf

ash28 wrote: »

I guess it depends on what was in his contract regarding measures of success. Share price down 40%, 33k jobs lost......didn't meet targets for lending to small business.....
.

Like it or not, success as a CEO can mean cutting jobs and costs. If these are unnecessary posts being streamlined, or if they are unprofitable divisions being closed, then it is in the interest of the company and the CEO is right to be rewarded for improving profit margins.

The small business lending is a bit ridiculous imo. The banks are being attacked by the FSA and Europe with regulation to increase capital and strengthen their balance sheets, and at the same time they are being told to ramp up loans to small, risky businesses. You can't do both things at once or you wouldn't be in trouble in the first place.

Secondly, performance related pay should NEVER be linked to the share price imo, there are so many external factors affecting share price and the CEO has almost no control over it. Long term, share price will correlate with the value of the business but short term it can do anything. Just because SP has declined 33% doesn't mean the company is in a worse state now, it could be people are too pessimistic now, or were too optimistic previously.

CLAPTON

ash28 wrote: »

I agree with a lot of what you say and have no problem with people receiving bonuses for a job well done or targets met - who ever they are.

I guess it depends on what was in his contract regarding measures of success. Share price down 40%, 33k jobs lost......didn't meet targets for lending to small business.....

Howeve, the government with an 85% shareholding could have voted down the bonus payment at the AGM, or could they?

And in the scheme of things the £1m is peanuts.

probably his major task as instructed by government was to reduce the size of RBS; reducing staff numbers was a central requirement (OK one that governemtn does continually remind us of but nevertheless his major goal)
code words are : recapitalise and reduce the size of the balance sheet ......... that means sell of parts of the business and reduce staffing levels and reduce lending)

As far a project merlin is concerned, apart from the Guardian not a single serious economic analyst took this seriously; it was entirely a political stunt

objectives are-

- reduce the balance sheet and recapitalise : means REDUCE lending
- reduce risk : means only profitable lending with low risk of default
- project merlin ; lend to anyone with a half baked idea with little prospect of the debt being paid back (but Vince loves this idea just like abolishing student fees)


but that's politics

Pennywise

There'd be no shortage of perfectly able people willing to do the job for the normal salary, pension, etc., without any promise of bonus. Far too long has the mutual back-patting been tolerated for highly paid bosses, voting each other ever increasing pay packages and making sure that they give each other the top jobs. About time the top-boss job market was opened up to let in some real talent.

pqrdef

PRP bullocks. The bonus awarded to the chairman was even bigger. What's he done?

molerat

IMO these obscene bonuses, the equivalent of at least the average workers pay for a whole working lifetime, are neither deserved nor earned. They cannot really be justified but have just become the norm in the greedy back patting circles.

glitter123

Shame he didn't say no before the weekend. I'd have had more respect for that decision.

Don't suppose it's harmed the prospect for a knighthood.

Wookster

Listening to Chuka Umuna this morning on the radio it is clear the man doesn't have a clue.

He said that Hestor did not deserve the bonus because the share price has plummeted and because RBS was laying off loads of people.

First off all financial stocks have declined hugely in value with the Eurozone crisis and impeding banking regulation. This is not something Hestor has any real control over. Worth noting that RBS has performed better than Lloyds!

Secondly, with the general shrinking of investment banking, staff resourcing will need to be realigned with business requirements, furthermore shrinking the investment banking arm was done on the explicit instructions of the Chancellor. Surprised that Labour's 'bright new star' wasn't picked up on this.

If I was Hestor, I'd be looking at other options now. £1m is small beef compared to how much the investment in RBS overall is worth to the tax payer.

Oh, markets gave their judgement as well: -3% off the share price.