Outrage as boss of bailed-out bank gets £1m bonus
Britain’s Labour Party is to call a parliamentary vote to try to block a huge bonus awarded to Stephen Hester, the chief of a state-owned bank. His supporters say the money is deserved.
The big topic of British politics in recent weeks has been capitalism, inequality and executive pay. Labour leader Ed Miliband has been talking about predatory businesses. Liberal Democrat Vince Cable has unveiled proposals to curb the salaries of company bosses. The prime minister David Cameron has been giving speeches about fairness, and ‘moral capitalism’.
Now, the prime minister’s rhetoric has been put, very sternly, to the test – and it is a test that many critics say he has failed. Why? Because of a huge bonus awarded to Stephen Hester, chief executive of the Royal Bank of Scotland (RBS).
Hester has been awarded shares in RBS that are worth, at current prices, just under a million pounds. That’s on top of a basic yearly salary of £1.2 million. Hester, it is estimated, earns more in three days than a soldier fighting in Afghanistan can expect to earn in an entire year of active service.
These facts alone might be enough to cause a stir, but Hester’s case is particularly controversial. That is because his employer, RBS, is almost entirely government owned, following an emergency bailout back in 2008. Hester’s salary, in other words, is being paid for by the UK taxpayer.
Why, many people are asking, was David Cameron unable to intervene to block the bonus? The government controls RBS; surely ministers should have been able to prevent such an extraordinary example of excessive pay?
But, some analysts are warning that things may not be so simple. It is rumoured that Hester had threatened to leave RBS if he wasn’t given his bonus, and to take his top staff with him. To replace the entire management team of the bank, Cameron has pointed out, would have cost much more than it cost to just pay the bonuses.
Worse yet, it would have badly destabilised RBS itself. If RBS fails, the government – and therefore the taxpayers – could stand to loose not millions but billions of pounds.
Cash or honour
Hester is one of the best financial minds in the world, intelligent and tough. He is widely thought to be doing a hard job pretty well. What’s more, his defenders point out, compared to executives at other banks, He is actually under-paid. That million pound bonus sounds like a lot, they admit, but really that is just what a top banker is worth.
What bankers are worth, Hester’s critics reply, is not the same as what bankers are paid. Perhaps the government had no choice but to offer him the bonus, they continue, but an honourable man would turn the money down. Why? Because the opportunity to do a public service should be enough reward, without a million pounds of taxpayers’ cash thrown in.
- How much should Stephen Hester be paid?
- Is it ever the right thing to do to turn down a million pounds? If so, when?
- Compose a poem, song or piece of art expressing Stephen Hester’s dilemma.
- Write a political speech EITHER for David Cameron explaining why the government could not block Hester’s bonus OR for Ed Miliband, explaining why the government should have blocked it.
Some People Say...
“If I ran a bank I’d take my bonus.”
What do you think?
Q & A
- Are British taxpayers really paying Hester’s salary?
- In a way, yes. Royal Bank of Scotland pays the salary and bonus, but RBS is owned by the government, which bought it using money from taxes. One day, RBS will be sold, and the more it is worth, the more money taxpayers will get back from their investment.
- And does anyone really work for low pay in a spirit of ‘public service’?
- Actually yes. Many top officials in the public sector are on salaries that are much lower than those in private companies. Many top civil servants and government officials could be running big companies instead – but they prefer to serve their country. In fact, Stephen Hester gets payed nearly ten times more than even the prime minister.
- Despite what the name suggests, bonus payments are given to bankers as a matter of course, not just on special occasions. For people at the top of the profession, it is expected that the bonus package will be larger than the basic salary itself.
- Bonuses are generally paid in company shares, which can only be sold after a set period of time. Because the value of the shares goes up and down with the value of the company, executives have a strong incentive to keep the company healthy.
- The Royal Bank of Scotland ran into trouble following the financial crisis of 2007/2008. It was feared that the bank might collapse, taking the savings of thousands of ordinary people down with it. To prevent a catastrophic blow to the UK economy, the British government stepped in and bought the bank, paying off bad debts and injecting cash into the system. RBS is now 83% state-owned.