After recent comment in the media including an interview by the BBC’s Robert Preston with Stephen Hester, CEO and Penny Hughes, an non-executive director and chair of the remuneration committee of the public owned RBS Group regarding payments to executives. It is clear to me that not enough has really changed with the culture of high salaries including bonuses to those working in senior positions in RBS or other organisations such as Barclays. The American CEO of Barclays, Bob Diamond, is credited with the comment that investment bankers are akin to premier league footballers and thus deserve their remuneration. Many may disagree and of course there’s always exceptions.
Mr. Hester explained during the BBC interview that a global search was required to replace the ousted senior management after the bank’s collapse and rescue by the taxpayer in 2008 with suitable new executives capable of the task of stabilising the bank’s £2 trillion+ balance sheet and returning it to profitability. The reduction in the banks balance sheet by selling many assets continues relatively satisfactorily however profitability is harder to come by.
Ms Hughes quoted in the FT* “we can’t be in a position where we penalise people because RBS is, to an extent, supported by the taxpayer as a consequence of actions of prior mangement”. Ms Hughes who reportedly earns £130,000 for this appointment and holds postitions at Cable and Wireless Worldwide and Wm Morrison Supermarkets amongst others insists that pay at the bank must be aligned with market and should not be influenced by broader social and economic factors.
Capable people I’m sure they are but this bank ran out of money. It isn’t in the market it’s a ward of state until hopefully the new management are able to sell something back to the market although in a much reduced state. A recapitalised restructured regional sized and retail banking RBS would be appreciated by taxpayers, customers and staff. At the moment it is a social and political utility and doesn’t operate in the market on its own merit.
From my viewpoint Mr. Hester should have been given £2m pa total salary with no bonus clauses if the rescue proceeds satisfactorily and similar for the other executives willing to help out at RBS in its time of need. Paying large bonuses to senior employees while the group is in state care and sacking lesser paid staff is always going to cause resentment. I would think a clever experienced new board would be aware of that possibility.
The globally sourced financial priesthood (see my blog of 17th February) have had their fallibilities exposed and their methods and assumptions found wanting. Use of untested products such as CDOs, CLOs and CDSs in the case of AIG, the now State owned US insurer, where it was everyone’s counterparty played their part. CDSs do however have a place in a properly funded and hedged transactions. Social and economic factors do matter and, to set an example, some humility should be expressed in the form of working for charitable rates at institutions such as the bailed out RBS Group. For the sake of western democracy attitudes of the highly qualified and remunerated financial elite needs to change. Diverse forces opposing (western) capitalism are gathering. Time is shortening to rectify nefarious greedy habits and tendencies this decade and people who should know better need to lead by example and not play in to the lap of the opposition.
As a last comment to this blog, stripping Fred Goodwin of his Knighthood doesn’t resolve anything, or get anyone their money back from investing in the £2 a share rights issue in the Summer of 2008. A criminal investigation may be better, either they knew what was going on or they didn’t, and if they didn’t, they were clearly out of their depth. Better leadership and a change in culture with those remaining in charge during this financial crisis is the only way to lance the boil of public loathing and sense of injustice with the banking industry’s behaviour.
LDC
* Source:FT Friday 17th February 2012 National News p3 article by Kate Burgess and Sharlene Goff