Applauding Stephen Hester's bonus waiver at RBS

Tuesday, Jan 31 2012 by
2
Applauding Stephen Hesters bonus waiver at RBS

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.

 

News on LCF Research Covered Stocks

Lo Q (LON:LOQ) , the company that supplies “virtual queue” management systems for the amusement and water park industries, announced an agreement with Six Flags to install Q-band at another of their water parks. The park is located in California and will become the ninth Six flags water park to begin deploying Lo-Q’s virtual queuing system. Six Flags is the world’s largest regional theme park operator.

The LOQ share price has increased by 81% over the last year.

Lo-Q Plc is currently graded b by LCF Research. To learn more, follow the link.


Surface Transforms (LON:SCE), the Cheshire based supplier of carbon fibre reinforced ceramic brakes and…

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This note was prepared by LCF Research Limited using information provided by the subject company’s management or publically available news sources. No representations are made nor warranties given (express or implied) in relation to accuracy and completeness. This document is not an invitation to invest in the subject company and does not purport to contain all the necessary information that a prospective investor might require. LCF Research Limited recommends prospective investors to conduct their own thorough independent analysis of the subject company and the information contained in this note or referred to above.


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Software Radio Technology Plc (SRT) is a United Kingdom-based company. The Company develops advanced radio communication based marine domain awareness technologies, products and systems.

LSE Price
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48.8
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255
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n/a

Surface Transforms PLC is engaged in manufacture and sale of carbon fiber reinforced ceramic friction and non-friction materials and the development of technologies associated with this. The Company manufactures of carbon-ceramic brake discs for automotive and aircraft applications. It also manufactures and supplies carbon pre-forms produced from polyacrylonitrile (PAN) carbon-fiber weaved into a three-dimensional (3D) structure. These pre-forms are used as base materials for producing carbon-carbon brake discs and other carbon-carbon components. It is also used in motorsport, special vehicles and rocket. The Company’s partners that develop and sell automotive brake kits incorporating its carbon-ceramic brake discs are Alcon, Movit and Stillen. more »

LSE Price
17.38p
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15.7
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Immunodiagnostic Systems Holdings PLC is a solution provider for specialty testing in immunodiagnostics. Through its subsidiaries, the Company is also engaged in developing, manufacturing and distributing medical diagnostic products; manufacturing diagnostic test kits, and developing, manufacturing and distributing automated instruments and the distribution of its products in France and Belgium. The Company offers IDS-iSYS instrument platform is an instrument based on Chemiluminescence and Absorbency technology. The Company's IDS-iSYS platform is focused on a range of clinical areas, including bone metabolism, calcium metabolism, hypertension, chronic kidney disease and growth. The Company's subsidiaries include Immunodiagnostic Systems Limited, Immunodiagnostic Systems Inc, Immunodiagnostic Systems Deutschland GmbH, Suomen Bioanalytiikka Oy (SBA Sciences Ltd), Immunodiagnostic Systems Nordic A/S, Immunodiagnostic Systems SA, ImmunoDiagnostic Systems France SAS and MGP Diagnostics AS. more »

LSE Price
149p
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Mkt Cap (£m)
43.8
P/E (fwd)
17.5
Yield (fwd)
1.5



  Is Software Radio Technology fundamentally strong or weak? Find out More »


4 Comments on this Article show/hide all

emptyend 31st Jan '12 1 of 4
2

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?

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ohinerau 31st Jan '12 2 of 4
3

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.

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emptyend 31st Jan '12 3 of 4
1

In reply to ohinerau, post #2

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.

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StrollingMolby 31st Jan '12 4 of 4
1

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

SM

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