The political fracas that pressed Royal Bank of Scotland PLC's chief executive to turn down his 2011 bonus has raised questions among people inside the bank, and among analysts, about how long he will remain at the helm.
The move by Stephen Hester comes at the start of what is expected to be another fractious bonus season in the U.K., as hefty banker payouts remain a cause for outrage amid the day-to-day struggles of ordinary Britons.
Compensation experts say that Mr. Hester is paid considerably less than he would receive at a firm that isn't state-controlled. But Mr. Hester, who took over as CEO in late 2008 after a government rescue of the bank, has been a lightning rod for criticism, given that RBS is still 83% government-owned after its bailout and is currently laying off thousands of employees.
On Sunday, the bank said Mr. Hester would waive his 2011 bonus award of about £963,000 ($1.51 million) in shares, which the board had only last week decided to give him. The move came after members of the U.K. opposition Labour Party called the payout "not fair," "immoral" and vowed to force a parliamentary vote on the matter. Britain's Daily Mail newspaper called the bonus "a reward for failure."
People familiar with the matter said Mr. Hester is increasingly frustrated with the public scoldings and suggested he could exit the bank, which is increasingly a target of political intervention, as early as the end of this year. But others familiar with his thinking said he would almost certainly stay at least until 2014, the scheduled completion of his planned five-year turnaround plan for the bank.
After the latest firestorm, Mr. Hester will seek to confer with members of government—including, possibly, Prime Minister David Cameron—to clarify the political backing he will receive for the terms of his pay going forward, in order to avoid a repeat of the recent public shaming, people familiar with the matter said Monday. A nod of support regarding pay could be a condition for him to stay on as chief executive, one of these people said.
Through an RBS spokesman, Mr. Hester declined to comment about such talks or his long-term plans.
Britain's bank chiefs have received public criticism over pay every year since the 2008 financial crisis. In 2009, many CEOs, including Mr. Hester, waived their bonuses. When Barclays PLC and HSBC Holdings PLC announce remuneration in coming weeks, their executives, too, are likely to face ire over pay.
The chief executive of Lloyds Banking Group PLC, also partially state-controlled, announced earlier he would waive his 2011 bonus.
The U.K., like the European Union, has cracked down on banker pay since the financial crisis. It has required a limit on cash bonuses and that large portions be paid in shares and deferred.
But such measures have seemingly done little to placate the British public, who still find six- and seven-figure bonuses hard to swallow amid the bleak economy.
The long-standing assumption in the U.K. has been that Mr. Hester would remain at RBS until the bank was fully, or at least partially, free of government control. But RBS's share price is languishing and the taxpayer stake won't be sold down anytime soon, people familiar with the bank say.
People familiar with the matter say that now, instead of measuring his success at the bank through a selloff of the government's holding, Mr. Hester may focus on different metrics for his progress, such as profitability and reductions in the bank's balance sheet. Success in those areas could allow him to exit gracefully before actually returning the bank to private hands, two people familiar with the matter say.
The RBS pay brouhaha also has fueled concern that the bank faces increased political meddling as time goes by.
When they were brought in, Mr. Hester and other senior management were told they could run the business on commercial terms, according to people familiar with the original negotiations. The government set up an agency, U.K. Financial Investments Ltd., to manage the state shareholding on an "arms-length" basis.
But some say the rules of the game have changed. "The longer [the government] is the shareholder, the worse it is likely to be in terms of the interference in the day-to-day running of the bank," said Tom Kirchmaier, a fellow in the Financial Markets Group at the London School of Economics.
A spokeswoman for UKFI declined to comment.
When Mr. Hester, 51 years old, and other new managers set out to clean up the bank after its break-neck expansion under former CEO Fred Goodwin, they anticipated it would be about three years before they sold off part of the U.K. government stake, according to people with knowledge of management's thinking.
But movement toward a sale was delayed as a result of the establishment of a government-appointed commission in mid-2010 that was charged with making U.K. banks safer. In September, the commission concluded that RBS should change its structure and isolate its retail business from investment banking, hitting the bank's share price. Troubles in the euro zone also drove banks' share prices lower.
On Monday, the bank's share price closed at 26.6 pence, down 1% and well below the government's buy-in price of 50.2 pence.
The uncertainty over when RBS will be free of state control has hit the morale of Mr. Hester and other executives there, say people familiar with the bank. "After three years, we'd thought we'd see the light at the end of the tunnel," said one."Now we are wondering, 'Is there an end of the tunnel?"'
read more: Olympus Wealth Management
No comments:
Post a Comment