These are sad times when ill informed mass hysteria
overrules reason and rationale.
Crony capitalism has become the latest buzz word in a list
that includes WMDs and moral hazard. And so let’s behead all bankers for they
are the epitome of evil.
What better way to incentivise him than to pay him in the
same stock that the taxpayer owns so his interests are perfectly aligned with
ours. Isn’t this the precise proposal that has been touted as the solution to
end short term profit seeking behaviour from bankers?
Over the public outcry he has now turned down this stock
compensation. That means he has no upside from driving value for the tax payer
any more. He was paid his base salary for the year so now why should he bother
working harder? There is no personal upside for him. £1.2mn for a base salary might
sound a lot to the common man but for the top bankers, as we hope Hester is, it’s
relatively meagre. The reality is that globally finance pays inflated salaries.
For one bank, or one country to singularly pressure its financial sector to cut
wages, means that that bank or country will no longer be able to attract the
best talent. If Hester is as good as we all hope he is, then he is now severely
underpaid and not motivated to work in our benefit.
RBS is a basket case. It failed under the previous
leadership of Sir Fred Goodwin and now it is state owned. For the state and UK
tax payers to benefit from this situation, the bank has to recover. Stephen
Hester was brought in to do this job. He is not the cause of this wreck. He is
hopefully its saviour.
Tax payers own 82% of RBS market cap. If RBS stock price
recovers, the state stands to benefit. Steven Hester’s job hence, is to increase
the bank’s share price from its current depressed value.
Well then why the media driven outcry over his bonus
compensation? Yes, he got a bonus in a year that RBS lost money. But he hasn’t
been paid out in cash from a depleting source. He’s been paid in the same
currency that the government owns. If he wants to increase his private wealth
he will work to maximise the stock price and in doing so, will benefit the tax
payer.
The problem we face today is that the media has received the
backing of the public in beating up bankers and in brandishing the government
as accepting hand outs from this sector. There is no longer a reasonable
discussion about what is fair and what is outrageous. In the Hester case, the
government cannot stand up for him because they will be labelled as succumbing
to “crony capitalism” and Labour will jump at the chance to push this opinion.
I wish we could see more reasoned judgment from the media
and perhaps the private sector itself but unfortunately the audience does not
want to listen. There is a cry for blood and that is all that they seek.
Agree with you
ReplyDeleteWould like to add that there must have been a contract covering his bonus payments.Govt should honour same regardless of who has signed it.
Chander
The original contract rewards him an additional sum linked to performance if he meets the pre determined target. Again, linking pay to long term performance which we have all been calling for but has been overruled in this case.
ReplyDeleteThis is silly. The public knows that CEO's and their friends whom they appoint to remuneration committees play a game where they pay each other more and more money. Doing this at the expense of shareholders who should be wise to it is one thing. Doing it at the expense of the taxpayer is not on.
ReplyDeleteWhen the comp is paid in stock and the tax payer benefits from increase in stock price - it is an entirely different situation to inflated bonuses that you are referring to. To address your concern, board room dynamics and incentuous support needs to be tackled. Hester's comp was not going to change this so punishing an individual who has been appointed to help shareholders should be incentivised appropriately, will not tackle the issue of CEO's and friends appointed to committees. You're firing at the wrong target.
DeleteRubbish, this upward spiral in remuneration is unsustainable. If we cannot now curtail this stupidity then when? You are a fool Riddhi if you honestly believe that Hester et al are so clever and irreplaceable.Bonuses encourage short termism when what we need is long term, sustainable growth for businesses, year end figures do not show a big enough picture to warrant such rewards...I'll tell you in ten years what Hester deserves. But right now I could replace him tomorrow with a dozen people who aren't even 50% tax payers yet.
ReplyDeleteThis comment clearly has not come from someone within financial services!
DeleteI think you are missing the point. In your anger towards "upward spiral in remuneration" you are trying to shoot down insignificant symptoms by curtailing Hester, rather than addressing the cause. If this is an issue that you are indeed so indignant about then I expect you are equally angered by the Rail Networks attempt to pay its directors absurd sums.
The reality is all large corporations exhibit this problem of inflated pay at the top. In Hester's case, by comparison, the number was actually fairly small (under £1mn) relative to finance and non-financial payouts. He was also brought in to "fix" RBS - direct your anger at Goodwin for squandering billions not on Hester for earning £600k.
If, as you claim, you do know such experienced people who are currently not even triggering the top tax rate, pray do tell who they are, because as a tax payer I sure would like to see the CEO of govt owned RBS get away with a £140k salary...my bet is, he wouldn't want such a overburdening job for such little money.
PS: I never claimed Hester "et al" are irreplacable or clever, I was pointing out that within that club of high flying execs (finance and otherwise), the collusion maintains higher pay hence you can't get anyone suitable for lower money. Only the less qualified will apply.