Applauding Stephen Hester's Bonus Waiver At RBS

31st Jan '12 by LCF Research

4 comments 12089 reads

I was delighted that Stephen Hester finally agreed to forego part of his RBS bonus, albeit that it took him some time to do so, and I salute Sir Philip Hampton, the RBS chairman, for providing leadership on this issue. My delight was for two reasons, namely:

1. As readers may have noted, I am an avid believer that private investors will (by harnessing, inter alia, the internet) be able to bring about change which will improve the functioning of the UK's capital markets from the standpoint of being a wealth preserver in real terms and, ideally, a wealth creator. An important element in this process is preventing employees from diverting to themselves remuneration which is excessive in relation to the rewards enjoyed by investors. In this instance, public opinion has done the trick.

2. Many column inches in recent weeks have been devoted to commenting on politicians' threats to introduce regulation to control excessive pay. I am completely against regulation as a means of dealing with this issue (as well as many other issues) because it invariably both adds to the cost of doing business and also suffers from the law of unintended consequences. A far better solution is for investors to behave like long term owners.

By complete contrast, I laud the way in which Software Radio Technology (an emerging Mittelstand company) is setting about communicating with private investors - click here to see the joining instructions for the company's webcast on 1st February. This is a great example of how digital technology can be deployed to both improve and also lower the cost of investor communication.

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emptyend

31st Jan '12

An important element in this process is preventing employees from diverting to themselves remuneration which is excessive in relation to the rewards enjoyed by investors

Given that Hester has dramatically reduced the risk in RBS's balance sheet, slashed the bank's funding needs, cut the overhead repeatedly and restored the bank to profit, just what level of reward do you consider NOT to be excessive in relation to the £45 BILLION of our money that the last Labour Government invested in RBS on our behalf?

ohinerau

I agree that success in the herculean task of cleaning up the RBS Augean stable deserves a very substantial reward. However, I don't think that an incentivisation package based on annual bonuses is the way to approach incentivisation in view of the timescale of the task involved - the package needs to recognise a) this timescale, b) the position which shareholders want to achieve, and c) the CEO's confidence in his ability to deliver b) and his intention to do so. Its all about thinking with the mindset of owners rather than mindlessly following established remuneration practises, particularly when there is widespread evidence of the latter failing to benefit investors.

I don't think that an incentivisation package based on annual bonuses is the way to approach incentivisation in view of the timescale of the task involved - the package needs to recognise a) this timescale, b) the position which shareholders want to achieve, and c) the CEO's confidence in his ability to deliver b) and his intention to do so.

That is a mischaracterisation of the package. AIUI there is a) Annual salary/comp b) Annual bonus and c) Long Term Incentive Plan. The LTIP addresses the long-term nature of the task of refloating RBS; the bit that the furore has been about is an annual bonus reflecting Hester's achievement of many of his specific business management targets for 2011. The annual bonus focuses the recipient on continuing to achieve milestones every single year - rather than merely on the vaguer long-term aim. In other words, the annual targets should be viewed as essential stepping stones towards achievement of the longer-term objectives....which is why, IMO, it is unwise to mess with them.

StrollingMolby

What a farce this hounding of Stephen Hester to decline his bonus is. The remuneration framework was put in place in consultation with UKFI and other institutional shareholders! I sympathaise with Hester who accepted a bl00dy difficult job to stabilise the bank following the mess Goodwin left it in, with a remuneration package agreed up front (as we all do when going for a new job). Hester delivered and was due his bonus this year, and bit-part of his rolling LTIP award (yet to be determined, or accepted).

As RBS is a Tier 1 (of 4) firm for FSA Remuneration Code purposes, all twelve Principles of the Code apply, including limited cash as a proportion of variable remuneration, deferral over three years, and clawback provisions.

http://www.investors.rbs.com/download/announcements/FSA_Remuneration_disclosure.pdf

Applauding Stephen Hester's bonus waiver at RBS

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