It was Ed Miliband’s threat to schedule a debate about his bonus in the House of Commons on February 7th that apparently did it. After a weekend’s skiing in Switzerland, the Financial Times says this was the, ‘final straw’: at 9pm last night, Hester called the RBS board and told them he’d give up his bonus.
Will this be enough to keep the hounds of public opinion at bay? Probably not. Opinion is already turning to the fact that additional shares to be awarded under RBS’s Long Term Incentive Plan would allegedly have taken Hester’s total package to something in the region of £8m. Will he be compelled to give this up too?
And where does it leave everyone else at RBS? What about John Hourican, due to receive £5.6m this year, despite the dismantling of much of the investment banking business? And what about the other 16,000 or so fast-depleting staff, due to share £500m between them? Or the £1bn allegedly set aside for redundancy payments for the undeserving?
The Guardian is already focusing attention on Hourican and RBS’s 323 other code staff, who earned an average of £1.1m in 2010. In particular, it notes: “They are also due to be handed shares they were awarded three years ago under long-term incentive plans amounting to millions of pounds.” The implication is that these LTIP awards should be removed, irrespective of prior contractual agreements.
What this weekend has clarified, for those to whom it was not amply apparent already, is that RBS is not only a nationalized bank - run on political principals, but a bank where strategy can be determined by public opinion. The decision to pull back from global banking and markets was just the start of this. In case anyone thinks otherwise, GBM remains comfortably profitable, revenues held up well last year and its return on equity – at 10.7% in the nine months to September – looked very impressive compared to the 3.7% for the full year at Goldman Sachs, which you don’t see cutting half its business.
When Hester’s pay was announced last week, RBS flacks may have felt they’d done enough to salve public discontent. The announcement stressed that the award was being delayed in full for three years, that Hester had not received a salary increase since 2008 and that – based on the current share price – Hester’s LTIP award for 2012 will be worth nothing at all (a fate which will unfortunately likely befall other RBS bankers too).
Ultimately though, it was just the figure - £963,000 – which lodged in the national psyche. If he wanted to live and work in the UK without becoming a pariah, Hester had no choice but to give the bonus up. In doing so, he may have temporarily avoided vilification, but this bodes well neither for other RBS bankers, nor – ultimately - for the City as a whole.