RBS bonuses: how excellent!

Bailed out Royal Bank of Scotland has handed shares worth £28m to nine of its top executives in the latest round of multimillion pound bonus awards by the high street banks.

The precise scale of the payouts at the loss-making bank, 83% owned by the state through £45bn of taxpayer funds, will become clearer next week when the annual report is published.

But stock exchange announcements showed that the nine key staff – including chief executive Stephen Hester – had been handed bonuses for 2010 of £10m in shares with a further £18m in long-term incentive plans that run until 2014 when their exact value will be known.

Isn\’t this great?

Everyone\’s getting bonuses in stock. Stock that they cannot sell for some years. So, their incentives are closely aligned with the interests of the shareholders. No more running a scheme that will blow up after the cash bonus has been banked: everyone\’s got to run the bank for the long term.

And, of course, in order for this to actually be an incentive, there has to be real money in the game. No point in offering £50k in stock to someone who already earns £1 million a year now, is there?

So, the bankers\’ bonus problem is solved.

Well, it is if we are to believe all of those who told us that bankers\’ bonuses were the problem. That short term horizons are exactly what led to the crash. We\’ve now got people with long term horizons, exactly what we need.

All that\’s left is people whining about peeps making lots of money.

Len McCluskey, Unite\’s general secretary, branded the payments by the bank – which lost £1.1bn in 2010 – a \”disgrace\”.

And fuck them quite frankly.

14 thoughts on “RBS bonuses: how excellent!”

  1. “Do bonuses paid in stock attract NIC and income tax? Anyone?”

    Yes. There’s a wrinkle to do with “restricted securities” but in essence they are taxed on receipt under PAYE.

    Share options are treated differently in complicated ways.

    It’s a right mess, made much much worse by Gordon’s tinkering, Darling’s rushed CGT reform, the Coalition’s stupid approach to CGT.

  2. I’m hoping that the “long term” lock-in on these shares is not the 2014 mentioned. 2114 would be better, if not 3014. I want these directors to run the bank on the basis that the only benefit they can get from owning these shares is a steady stream of dividends. Why?
    * Anyone worried about share prices a mere three years from now is not a shareholder, they are a share speculator. Nothing wrong with that per se, but not the attitude we want from the bosses in a large, systemically important business.
    * The banks (and their long term shareholders) have just been hammered by management mistakes made continuously over 10+ years. Thus, there were many 3 year periods in which the banks didn’t fail and in which the bank’s shares rose in value, yet the managers at the time were responsible for making disasterously bad choices.

  3. Aren’t people really complaining about the lack of linkage between pay and performance? In which case it doesn’t matter if the awards are made in cash, stock or bananas. But to try and argue that people don’t have grounds to have a moan reads a bit like ‘fuck the shareholders’.

  4. According to Murph:

    ‘It’s, in my opinion, impossible to defend payments to senior RBS staff. Most especially the fact that RBS chief executive Stephen Hester will enjoy a pay deal worth around £7.7bn if he meets his targets.’

  5. Tim,

    Paying the bonuses in stock only moves the problem from the account books to the philosophy books.

    The GB public owns 84% of this bank. Have we been asked whether we consent to our shareholding being diluted in this way? Or are little banking monkeys stealing our property from underneath us by paying themselves with our shares?

  6. Tom P – the point of paying in shares is that it does create a link between pay and performance.

  7. Martin said: The GB public owns 84% of this bank. Have we been asked whether we consent to our shareholding being diluted in this way? Or are little banking monkeys stealing our property from underneath us by paying themselves with our shares?

    Someone has to run it, Martin, and it had better be someone who at least seems to know what he’s doing, so he’s going to need paying handsomely, and we can either pay him in ‘our’ cash or ‘our’ shares. I know which I prefer.

  8. Were the”bonuses” paid in newly issued restricted shares?
    Nothing prevented the bank from purchasing an equivalent number of outstanding shares at (what I assume is) a depressed price at present to avoid diluting the share value?
    If so, then not such a wise PR move.

  9. ‘Tom P – the point of paying in shares is that it does create a link between pay and performance.’

    You’re talking about once the shares are awarded. I was talking about the decision to award shares in the first place.

  10. Tom, but the reason to decide to award shares in the first place, rather than paying cash, is to create a link between pay and performance. (Or possibly for tax benefits).

  11. Dan,

    That anyone, even the merest Tunisian boat perosn, would be capable of running the Royal Bank of Scotland more competently than its previous management is not in dispute. Now, we all have our own preferences as to how our servants are best paid, just as we might have tastes in wine, or strong cheeses; however, given the particularly thorny nature of RBS’s current legal status, it is unbecoming for those who are to all intents and purposes its custodians be paid with the essence of RBS itself.

  12. “Tom, but the reason to decide to award shares in the first place, rather than paying cash, is to create a link between pay and performance. (Or possibly for tax benefits).”

    There is nothing unique about share awards, cash bonuses can be subject to subsequent performance criteria too – bonus-malus/clawback etc.

    But again to make the share awards in the first place is to ‘reward’ for something, otherwise they would have just got their salary. And it’s entirely legitimate to question whether that award was justified.

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