(Updates with Alexander’s comments in penultimate paragraph.)
Jan. 29 (Bloomberg) -- Royal Bank of Scotland Group Plc Chief Executive Officer Stephen Hester came under further pressure to give up his 963,000 pound ($1.5 million) bonus after Chairman Philip Hampton waived a 1.4 million-pound shares award.
If Hester decides to claim his bonus “nobody would be happy with the government, but it’s up to him,” Pensions Secretary Iain Duncan Smith told British Broadcasting Corp.’s “Marr” program today.
Hester, 51, has been at the center of a political furore over executive pay since the announcement on Jan. 27 that he is to receive 3.6 million shares on top of his 1.2 million-pound salary. RBS has fallen 35 percent in the past year and the Edinburgh-based bank said this month it plans to cut 4,800 jobs.
Hampton had been due to receive 5.17 million shares that were awarded when he joined the state-controlled lender in 2009, RBS said yesterday. He gave up the bonus on the grounds that it would be inappropriate to take it, the BBC reported.
Britain has an 83 percent stake in RBS after bailing out the bank with 45.5 billion pounds of capital during the 2008 and 2009 banking crisis. Hester’s award, whose value was based on the RBS closing price on Jan. 25, will be deferred until 2014. He took a 2 million-pound bonus for 2010, his first since replacing Fred Goodwin in 2008.
Prime Minister David Cameron was criticized by the opposition Labour Party, as well as by coalition allies in the Liberal Democrats and members of his own Conservative Party, for approving Hester’s bonus days after urging shareholders to hold down executive pay. The payout comes at a time when unemployment is at a 17-year high and the economy stands on the brink of a second recession in less than three years.
“The question is inequality has to be tackled if we are to protect the economic recovery,” Scottish First Minister Alex Salmond told the “Marr” program. “When an organization is in the public sector, there has to be accord with the discipline ordinary workers in the public sector are being asked to accept. The integrity of the public sector depends of pay restraint in the public sector.”
Duncan Smith said the agreement drawn up by the previous Labour administration when the bank was rescued in 2008 means the government can only block the payout by deposing the board, which would cause “chaos” in the financial system.
“If you do that, imagine what would happen in the banking sector,” he said. “Imagine what would happen to RBS. You’d have chaos. We need to get this bank to a point where we can sell it back and get the money for the taxpayer which has been put in.” Hester’s bonus could be clawed back if RBS fails to perform, Duncan Smith said.
An ICM Ltd. poll found just 7 percent think senior executives should earn more than 1 million pounds a year, while only 1 percent said they were worth the 4 million pounds that is now the average for the heads of FTSE 100 companies.
“People think these are difficult jobs and need to be well rewarded but they feel that the excess we’ve seen in recent years is just not fair,” Deborah Hargreaves, director of monitoring body the High Pay Centre, which commissioned the ICM survey of 2,003 voters, told Sky News today.
Chief Secretary to the Treasury Danny Alexander said the U.K. government gave a “very strong steer” to RBS that bonus settlements were reduced.
“We’ve used our influence to ensure that the bonus paid this year is less than half of that paid last year,” Alexander told the BBC’s Sunday Politics program. “You’ll see something similar when the RBS brings out its full bonus pool.”
--Editors: Mike Harrison, Ross Larsen
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