The head of Royal Bank of Scotland (RBS) will earn more than £9.6 million (US$15.6 million) in cash and shares in return for long-term success, the state-owned bank has said. RBS, which the government bailed out last year amid the collapse of the global banking sector, confirmed late on Monday that chief executive Stephen Hester was set for a bumper pay deal.
The package, while coming under attack from shareholders and union leaders, marks a move away from the pre-financial crisis culture of rewarding bank bosses huge sums of money in return for only short-term success. Some analysts have argued that this type of reward largely contributed to the worst financial crisis in decades by encouraging undue risk taking.
Hester would receive his hefty pay deal should the share price of RBS pass 70 pence. In early London trade yesterday, it stood at just below 37 pence after tumbling over the past year following the government’s bailout that left the taxpayer owning 70 percent of the lender.
Hester has been offered a basic annual salary of £1.2 million, about £2 million in annual non-cash bonus payments and some £6.4 million in long-term share and stock option awards. Hester will also be paid a pension.
“It is critical that Stephen succeeds,” RBS chairman Philip Hampton said in a statement.
“If he does, the UK government will be able to sell its shares at a profit and all shareholders will benefit,” he said. “The long term incentives are worth little or nothing without a strong return to shareholders and there is no reward for failure in our remuneration policy.”
Roger Lawson of the RBS Shareholders Action Group hit out at the offering however, claiming the amount remained far too high.
“It is absolutely outrageous that the government does not use its power to bring the remuneration of bankers in these companies down to a reasonable level,” he said.
“Do they need to pay him this much to make him work harder?” he Lawson asked.
Graham Goddard, deputy general secretary of Britain’s biggest union Unite, said news of Hester’s package would be met with “absolute disbelief” by finance industry staff.
Last week, Hester’s predecessor Fred Goodwin agreed to take a 40 percent pension cut following public anger over his deal.
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