Posts tagged "Stephen Hester"

RBS boss Stephen Hester hits back at the ‘hostile commentariat’

Speaking at the Manchester Business School, Hester said he had ‘underestimated how intense, critical and long lasting’ the spotlight would be on the bailed-out bank

Stephen Hester, chief executive of Royal Bank of Scotland, said it was “uncomfortable” to work at the bailed-out bank, and suggested the government’s 82% stake in the bank was slowing down its recovery.

Hester also hit back at the “commentariat” of politicians, media and commentators whose outcry forced him to waive his near £1m annual bonus, saying his motivation for staying on at RBS was to “prove the critics wrong”.

“No company has had a greater kicking or is subject to greater hostility from the commentariat … It is uncomfortable to work at RBS. One of the biggest rewards of returning the business to health will be the richly deserved sense of respect and accomplishment it can restore among staff.”

Speaking at the Manchester Business School, Hester said he had “underestimated how intense, critical and long lasting” the spotlight would be on the bailed-out bank and implied that the £45bn of taxpayer cash poured into the bank to save it from collapse was now hindering its return to financial health.: “Governments are not good long term owners of complex international businesses. The ownership can cause political controversy of itself, and create pressures that hinder the progress of the subject company.”

There were two years of “heavy lifting, significant clean up costs and vulnerability to outside events” left at RBS, he said. Hester is three years into a five year recovery plan and said his belief that the company can be turned around “has been tested but remains intact”. He added that the day when RBS can resume paying shareholder dividends and drive up its share price was “steadily approaching”.

In a speech designed to position RBS as integral to British community life, he said bankers were not “masters of the universe” – a reference to a phrase in Tom Wolfe’s novel Bonfire of the Vanities which became much quoted during the credit crunch – but “servants of our customers”.

Just as RBS became a “poster child” for banking excess during the boom years, Hester said the day when the government can sell its shares in the company will be a symbol of the UK’s economic recovery.

Shame works on bankers, MPs and tabloids, however immune they seem | Gaby Hinsliff

Closing tax loopholes is more than token banker-bashing. Small gestures can shake up cosy elites

If ever a word captured what the right feels is essentially wrong with modern Britain, it wouldn’t be “broken” so much as “shameless”. Nothing offends conservatives, after all, quite like the flouting of moral codes. But is it the feckless poor or the reckless rich who really lack the scruples necessary to civilised life?

According to a rather entertaining paper from the University of California, Berkeley, which was reported this week, those from upper income brackets are actually more likely to break the law when driving, lie and cheat – or even help themselves to sweets from a jar earmarked for children. Chalk one up for the noble poor, it seems.

Real life is inevitably more complicated than it looks from the lab, of course. But such studies may help to illuminate the moral question behind so many of our raging scandals, from corporate tax dodging to phone hacking: why aren’t more people simply ashamed of behaving so badly?

Shame is a profoundly social thing, triggered not so much by breaching an innate fixed code as by doing something that we think risks ostracism from our peers. And that means context is more important to morality than we think.

As the economist Paul Ormerod has argued, we tend to cluster in self-reinforcing cliques: binge drinkers, for example, tend to have friends who binge-drink. It may sound obvious that those whose idea of a good time is downing Jägerbombs until they pass out don’t automatically bond with anyone defining indulgence as staying up late for Borgen. But it indicates that behaviour often doesn’t feel unacceptable if everyone around you is doing the same, which helps explain why News International reporters still complain that chequebook journalism is just how Fleet Street works, or why Barclays responded to accusations of tax avoidance by protesting that other banks did it too – regardless of how bad this looks to outsiders.

What unites the extremely rich and the extremely poor is a certain detachment from the mainstream world. As Emma Harrison, the government’s former welfare tsar, used to say, before quitting amid allegations of fraud in her own company: if you live on an estate where virtually nobody works then living on benefits feels normal. But inside the bubble of the super-rich it’s equally easy to start believing that the top 1% really are overtaxed enough to justify some creative accounting, or that laws are for little people. The higher you rise, the more you lose sight of other people’s reality.

And it isn’t just riches that insulate us from shame. In an increasingly stratified society, well-paid professionals mingle mostly with other like-minded professionals in cosy, self-reinforcing circles. Recent failures of self-regulation in banking, politics and journalism reflect the inability of professions distinguished by close-knit camaraderie – and the shared belief that outsiders don’t really understand – to realise that what looks normal to them looks wrong from a different perspective. But such charmed circles can be broken.

When the parliamentary expenses scandal erupted, many MPs initially couldn’t understand why a long-established practice should be so vilified. It was only when painfully exposed to public outrage that many began to feel ashamed of charging new kitchens to the taxpayer, and to wonder how they could have so lost touch. Shame flowed from a mix of transparency and the forcible reminder of social norms, as MPs found themselves publicly harangued in constituency surgeries or on the school run.

Faceless corporate executives may be less accountable than elected politicians, but that doesn’t leave them beyond shame. One reason Ormerod’s work interests City regulatory circles is his argument that to change individuals’ behaviour you must tackle the networks to which they belong: reach key influencers in those networks, and change ripples out.

What’s happening now among retailers quitting the government’s unpaid work experience scheme feels something like this ripple effect in action: it’s surprising how quickly big and powerful companies lost their nerve once one or two of their peers bowed to public anger. Similarly, the decision of Stephen Hester, the RBS boss, to relinquish his bonus in order to avoid becoming, as he put it, a “social pariah”, was a crucial signal to his City peer group that public opinion has consequences.

So while cynics may regard Tuesday closure of tax loopholes as little more than token banker-bashing in advance of a budget that is likely once again to squeeze the poor, sometimes small acts matter. If Ormerod is right and small changes by the right people can resonate, then even token gestures may usefully remind elites of their responsibility towards others.

And if the City finds this puncturing of the bubble uncomfortable, it should perhaps remember that in evolutionary terms shame is partly what makes humans such a successful, entrepreneurial species. Shame leaves us free merrily to pursue our own selfish ends, as long as we do not invoke the wrath of the group – but it works only as long as we can reliably expect to be punished for behaviour that is harmful to the greater good. Successful societies depend, ultimately, on shame: which is why it’s not enough just to be sorry that you got caught.

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RBS chief Stephen Hester to receive £600,000 share windfall

Weeks after waiving £1m bonus, head of struggling bank is among top executives to be given a combined £11m

Stephen Hester, chief executive of the Royal Bank of Scotland, is on course to be handed £600,000 in shares next month – just weeks after a political outcry forced him to waive a bonus of nearly £1m.

Hester is among a number of top RBS bankers who are poised receive a combined £11m in the coming months when bonuses awarded up to three years ago pay out.

The bank has attempted to defuse the row over the £1m payout for Hester, who admitted that he had considered resigning at the height of the row over his bonus at the end of January but concluded that it would be “indulgent” to do so.

Earlier this month, Hester admitted that he could not win “the societal argument” about the size of his pay. He is scheduled to face City analysts next Thursday, when he announces the struggling bank’s results for 2011.

The bank is not expected to discuss payments to Hester or other individuals when the results are released, but it will disclose the total size of the bonus pool for 2011. Analysts have speculated that it will stand at around £500m.

Due to the complexities of City pay deals, the latest shares being handed to Hester relate to his work for 2010. The £600,000 is based on an award of 4.5m shares he received last March, half of which are due to be handed to him on 7 March, although he has agreed not to sell them for another 12 months.

On the same date next month, eight of his most senior management team – including the head of the investment bank, John Hourican – are also scheduled to receive their share awards from 2010, worth around £1.2m in total, which they cannot sell for six months.

Awards of shares made three years ago are also due to be paid out to other senior staff in coming months, with a total value at current prices of around £3m.

Hourican stands to reap the greatest rewards – up to £6.2m by April, when as many as 21.3m shares could be released to him on top of the March payout if he has met the performance conditions set three years ago. He could receive even more if the bank’s share price creeps above 28.2p, as he has an options scheme that allows him to buy shares at that price. On Friday the shares closed at 27.6p, some 22p lower than the taxpayer paid for them – the equivalent to a paper loss for the Treasury of more than £22bn.

The share price was 44p when Hester and his colleagues were awarded the shares, so they have lost almost half their original value.

A spokesman said: “These were announced last year and endorsed by 99.2% of our shareholders”.

The bank’s chairman, Sir Philip Hampton, defended the chief executive after the bonus row. “He is doing one of the hardest jobs in the world. He is being paid at the low end of the range,” Hampton said.

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Politics live blog: Tuesday 14 February

Rolling coverage of all the day’s political developments as they happen

8.39am: You can read the Moody’s report on Britain and eight other European countries here.

And throughout the day my colleagues Graeme Wearden and Juliette Garside will be covering the reaction to the Moody’s decision on their business live blog.

8.24am: I’m not sure that took us very far. But here’s a summary anyway.

• Osborne said the warning from Moody’s about the possible lose of Britain’s AAA credit rating was “a reality check”. He explained: “For me it was a reality check, for the whole political system, that Britain has to deal with its debts … It is yet another remined that Britain does not have some easy route out of the economic problems that have accumulated over the last decade.”

• He said the Moody’s report showed that Labour’s policies would lead to Britain suffering a credit rating downgrade.

What Moody’s is warning us today is very clear. They says Britain’s rating would be downgraded if there was a reduced political commitment to dealing with our debts, if there was any extra discretionary spending or borrowing. Now, that is what is urged upon me by my political opponents.

• He rejected claims that the withdrawal of Fred Goodwin’s knighthood meant that the government was “anti-business”. Britain had one of the most pro-business cultures in the world, he said.

8.19am: Osborne says there is evidence that cutting corporation tax has encouraged more firms to relocated in the UK.

Q: But you have been delivering an anti-business message, as Roger Carr, the CBI president, said recently.

Osborne says he agrees with the point Carr was making. But the anti-business messages have not been coming from the government.

Q: So we won’t see more businessmen losing their knighthoods?

Osborne says the BBC is often in the front row when the tumbrils arrive.

8.14am: Humphrys says the government has “rattled” business.

Osborne says the government is “pro-business”. Business taxes are being cut.

With regard to banking, the government is also taking measures to protect the taxpayer from the risk of banks failing. But that’s not anti-business.

There should not be rewards for failure.

Q: But you have taken the Stephen Hester and Fred Goodwin cases, and used those to attack the banks generally. You are coming across as encouraging “banker bashing”. That will be damaging, won’t it?

Osborne says that is not the message coming from government. The government is welcoming to business. Britain has one of the most “pro-business”, pro-market cultures in the world.

But some banks got over-indebted. The taxpayer had to step in. That was anti-business.

Q: But you said the Royal Bank of Scotland symbolised everything that went wrong.

It did, says Osborne.

Q: And everyone behaved like RBS?

Osborne says he is not saying that.

Q: Why did you take away Goodwin’s knighthood?

Osborne says that was a decision taken by an independent body.

Q: Encouraged by David Cameron.

Osborne ignores this. But he says he does not approve of rewards for failure.

8.11am: Humphrys asks Osborne if he “lost sleep” over the downgrade warning.

Osborne says this was a “reality check”. Moody’s were highlighting the importance of dealing with debt. This was “yet another reminder” that there is no easy route of the the crisis.

Q: Will you respond to what Moody’s said about weaker growth prosects?

Osborne says growth is important.

Q: So why have you abandoned growth?

Osborne says it is “nonsense” to suggest that he is not tackling growth. It is a “false choice” to suggest that the government has to choose between tackling debt and promoting growth.

Q: When there was a warning about a credit rating downgrade under Labour, you said the government’s credibility was on the line.

Osborne says that of course this is an issue of credibility.

But the government has set out a credible plan, he says.

Moody’s are saying that an extra discretionary spending or borrowing would lead to a downgrade. That is what Labour are advocating, he says.

8.10am: John Humphrys is interviewing Osborne. They are starting now.

8.00am: George Osborne has defended his economic policies on the grounds that they are protecting Britain’s AAA credit rating (which in turn keeps interest rates low) but now it is under threat. As the Guardian reports, Moody’s has warned overnight that Britain is at risk of a downgrade.

Britain’s AAA credit rating was thrown into doubt after the ratings agency Moody’s said the ongoing euro crisis and a credit squeeze on the banking sector put the country at a higher risk of defaulting on its debts.

Moody’s said that countries including the UK, France and Italy would be put on negative watch after citing “uncertainty” over Europe’s handling of its ongoing debt crisis.

The possible loss of the UK’s much coveted triple-A status will be a bitter blow for the chancellor George Osborne who has staked his reputation on distancing Britain from the ailing eurozone.

On the Today programme earlier Ed Balls said that this showed that Osborne’s policies were not working.

A change of course is needed … It is a disaster for our country and the world to make the mistake of the 1930s. The ratings agencies are starting to get there. I’m afraid our chancellor is still in complete denial about the state of the economy and the failure of his policies. And, in the end, somebody will have to clear up George Osborne’s economic mess.

And what does Osborne think? We’ll find out in a moment, because he’s going to be on the Today programme at 8.10am. I’ll be covering it live.

Otherwise, it’s a fairly quiet day. Lady Warsi, the Conservative co-chairman, is giving a speech at the Vatican in which she is going to warn about the “militant secularisation” of society. Peers are going to renew their debate on the welfare bill. And late this afternoon David Cameron is hosting an insurance summit.

As usual, I’ll be covering all the breaking political news, as well as looking at the papers and bringing you the best politics from the web. I’ll post a summary at around 1pm and another at around 4pm.

If you want to follow me on Twitter, I’m on @AndrewSparrow.

And if you’re a hardcore fan, you can follow @gdnpoliticslive. It’s an automated feed that tweets the start of every new post that I put on the blog.

RBS boss Stephen Hester speaks out after bonus row

Banker admits he cannot win ‘societal argument’ on bonuses – ‘none of us are starving’ – but insists he is a ‘commercial animal’ and wants to be paid as such

Stephen Hester, chief executive of Royal Bank of Scotland, has revealed that he had considered resigning during the furore over his near-£1m bonus, but decided it would be too “indulgent” to do so.

Speaking in the cavernous white office once occupied by his predecessor Fred Goodwin, who was stripped of his knighthood last week, Hester admitted that he could not win what he described as “the societal argument” about the size of his pay. His salary is £1.2m a year but annual bonuses and longer-term plans can push it up to more than five times that amount.

He made it clear that while he did not set his own pay, he was a “commercial animal” and wanted to be paid as such. Asked why he needed a bonus at all, he said: “One doesn’t need it. No one in this room, none of you – even if you’re not on the same salary as me – no one is starving and by those standards one can’t win this discussion.”

Fresh from an interview on Radio 4′s Today programme in which he described his job as defusing “the biggest time bomb in history”, Hester admitted being concerned about the long-term impact of the political furore surrounding his bonus, but refused to respond to any of the politicians who have singled out the RBS boss and his pay packet for criticism.

He did, however, concede that the bank and the government needed to “regroup” and reconsider the fact that RBS was run as a commercial enterprise, despite being 83% owned by the taxpayer after its £45bn bailout.

The political row over his bonus, he said, posed a question about whether RBS’s recovery and the aim of getting back the taxpayer’s £45bn would be “impeded by us having some uncomfortable halfway house … expecting us to pay differently to everyone else and achieve differently than everyone else.”

In stark contrast to the immaculately tidy desk of his predecessor, Hester’s workstation was strewn with papers. The office walls were adorned with pictures of his 350-acre estate in Oxfordshire, which is tended by eight gardeners.

The bank’s financial results for 2011 will be published in a fortnight and will set out the size of the bonus pool for its investment bankers – who are dwindling in number owing to a restructuring announced last month. Hester refused to be drawn on the scale of the payout likely to go to the head of the investment bank, John Hourican, saying it would be “invidious” to discuss the matter. But he seemed to indicate that bonuses must be paid. “We should be at the restrained end of the market in which we compete, but we should recognise that our people are doing a damned good job,” he said.

The 51-year-old was skiing in Switzerland on the Sunday night when he decided to waive his bonus. He made his decision hours after Labour had called a debate on the award to Hester of 3.6m shares – and on Wednesday he told the Today programme that he had considered resigning: “I’m certainly not a robot and there have been some deeply depressing moments. In the end I came to the conclusion it would be indulgent for me to resign, and what I ought to do was draw on the reserves of strength I have.”

The divorced father of two teenagers admitted to having had “everything … emotionally, physically, intellectually” tied up in RBS for the last three years and he did not want to “toss it away” in a moment of pressure. “If there’s a quality that got me to where I am in business, it’s wanting to win for my company. The moments when I have hesitations are when there are obstacles that are going to be difficult to get over,” he said.

Usually a man who shuns interviews, Hester stressed that he did not want to be a politician or be “in the papers all the time”. Shortly after he was appointed in October 2008, the bank reported the biggest loss in UK corporate history of £24bn and Hester admitted on Tuesday that the bank had incurred £38bn of costs trying to clean up the mess. However, it has also generated £33bn of profit before bad debt charges.

Hester said he had been lured to RBS from British Land – a role in which he had been “perfectly happy” and had deliberately taken on to prove he could be more than a banker after a career at Credit Suisse and Abbey National.

He took the RBS job on the basis it would be run in a commercial way – “some would say in a hard-nosed way”. “I attempt to be commercial in the results I get, and I want to be commercial in the way I’m treated. I’m happy for that to be at the restrained end [of the pay scale], albeit in a societal debate I can’t win,” Hester said.

“If I only worked for money I wouldn’t do this job – but that isn’t to say I don’t care about money,” he added.

Hester appeared to admit that he has had approaches about other roles since the bonus row. “People have been very kind in all sorts of different ways, but my preference is to succeed at RBS.”

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George Osborne pledges battle against ‘anti-business culture’ amid bonus row

• Believers in free market ‘must fight rewards for failure’
• Stephen Hester says RBS staff should be proud

George Osborne says the government is determined to fight an anti-business culture as ministers seek to fend off criticism from high-profile City figures of their handling of bonuses at Royal Bank of Scotland and Network Rail

Speaking to the Federation of Small Businesses on Tuesday night, the chancellor said it was up to people who “believed in the free market” to fight against rewards for failure in the financial system. He added: “There are those who are trying to create an anti-business culture in Britain – and we have to stop them. At stake are not pay packages for a few but jobs and prosperity for the many.”

He was speaking on a day when the Commons debated a Labour motion on bonuses. The decision to call that debate a week ago prompted Stephen Hester, chief executive of Royal Bank of Scotland, to waive his near-£1m bonus.

Chuka Umunna, the shadow business secretary, who led the debate, said: “We’re using the debate to highlight how excessive pay is bad for business, as well as for society and the economy more generally.”

In an email to staff, Hester called on workers at the bailed-out bank to be “strong”, “purposeful”, and “calm”, in the wake of the publicity surrounding his decision on the bonus and the stripping of the knighthood from his predecessor, Fred Goodwin.

In the memo, written after the political furore caused by the award of his 3.6m shares, Hester warned that it was impossible to know how much damage had been done through the bank being in the spotlight.

The row over bonuses has led to the government being criticised by the Labour opposition and its own City supporters, including Michael Spencer, former party treasurer and chief executive of the money broking firm Icap.

As Hester thanked colleagues for their messages of support, he said he was “acutely conscious that the way our company has been in the media and political spotlight this last 10 days is discomforting to say the least”. He added: “And while it has been personalised in different ways, whether on myself or my predecessor, many have felt a broader impact on RBS of the uncertainty and criticism.”

He made clear to staff, who were also waiting to learn the size of their bonus payouts for 2011, that he had the backing of the chairman, Sir Philip Hampton, who last week asserted that the chief executive was not highly paid for the role he had.

The bank is thought to have amassed £500m to pay out in bonuses – which are restricted to £2,000 in cash – while some senior bankers such as John Hourican, head of the investment bank, are due to receive shares, awarded three years ago and currently valued at more than £5m.

Hester, who was parachuted in to replace Goodwin after the 2008 taxpayer bailout, said that the bank was now safer than it was at the time of the £45bn government rescue package, and that it had generated more than £33bn in profits before impairments from bad loans.

He said that the bank could get “over great obstacles”, as it had in the last three years since its near collapse. “There is no doubt that our position in the spotlight makes the job harder. And we can’t know how much damage that will do to RBS or the interests of those we serve, whether as customers or shareholders,” he said. “But the best way to deal with it is to prove the critics wrong. To be purposeful, calm, and do our jobs to the best of our ability. And have confidence and pride in what we have done and what we can accomplish. We should try to be strong, to do our jobs, to deal with facts not fears.”

But he also stressed that the employees themselves needed to consider the broader perspective.

“Many people within RBS and in the wider economies we serve are facing uncertainties around jobs, earnings, housing values and many other things,” he said. “None of us, individually or RBS as a whole, exists in a vacuum. We do need to keep in mind that bigger picture.”

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Bonus outcry brings boardroom dilemma for No 10

Tory party funders are worried David Cameron is running scared or feeding the anti-business mood

No 10 and the Department of Transport will be breathing a sigh of relief that the bosses at Network Rail have decided to forgo their bonuses this year, instead handing the cash to badly needed rail safety improvements – even if in doing so they eloquently demonstrate the trade-off between private affluence and public squalor.

But David Cameron will be worrying that the mob of vengeful public opinion will now race through boardroom after boardroom demanding restraint each time the media or an Opposition politician alights on a juicy pay package.

Stephen Hester, the RBS chief executive, gave in last week, admitting he had misjudged the public mood. In the weeks ahead a host of bankers and semi-public sector executives in the regulated industries will face the court of public opinion as their pay packages are publicised, and scrutinised. Royal Mail, bankers, energy bosses, local authority chief executives, train operating companies, broadcasting organisations, airport chief executives, health trust chairmen, water bosses will all be anxiously talking to their human resources and PR departments to ask what pay levels will be acceptable.

Right-of-centre commentators detect an anti-profit mood. Tory funders are also anxious that Cameron is running scared, or even worse feeding the populist anti-business mood, coming perilously close to a national high incomes policy of the kind Labour governments used to impose on unions in the late 1970s. Michael Spencer, one of the top fundraisers for the Tories and chairman of Icap, the City broker, told the Sunday Times that the row that forced Hester to give up his £1m bonus sent a negative message to the business community. “I think the way Hester was effectively bullied out of his bonus was very negative indeed for the message it sends to the business community at large.”

It seems a long time since Britain’s executives, with some covert support in the Treasury were openly agitating for an end to the 50p top rate of tax. No 10 seemed to acknowledge its dilemma, stressing it was not going to comment on individual pay packages in the weeks ahead. At the same time, it sent out a message of general restraint, indicating very few generous pay packages are going to receive government support. Transport department officials were also anxious to underline how tough Justine Greening, the transport secretary, had been with Network Rail.

The prime minister’s spokesman said: “As a general rule clearly the prime minister is keen to see responsibility and restraint exercised by boards of companies whether they are in the private or public sector. All bits of the public sector should be reflecting on the financial environment and taking responsible decisions.”

The spokesman added the government did not want to see rewards for failure, and wanted to see shareholders take greater initiative. Yet in many cases the government is either the shareholder, the provider of subsidy or the author of the regulatory structure. In the case of Network Rail, since 2005 the government has not taken up the option of a seat on the remuneration committee, hardly an example of shareholder activism.

In some of its responses so far it is not clear if the government is opposed to large pay packages per se, or only large pay packages not justified by performance.

In a debate on Tuesday in the Commons called by Labour on banker’s bonuses, do not expect Labour to probe too deeply into the criteria that should apply to executive pay.

It will make a general point about the need to stop rewards for failure, call for greater transparency on pay and then propose workers on remuneration committees. Labour knows it scored points on Hester last week, but cannot afford to be seen as anti-business. But it will be a brave Conservative politician in the current climate that gets up to defend business.

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RBS chairman defends Stephen Hester’s near-£1m bonus

Sir Philip Hampton admits taxpayer-owned bank underestimated scale of public reaction to award of 3.6m shares to chief executive – which he has since waived

Royal Bank of Scotland’s chairman has defended the near-£1m bonus awarded to its chief executive Stephen Hester by insisting he was doing a “great job” and paid less than his peers.

Sir Philip Hampton admitted the bank had underestimated the scale of the public reaction to the award of 3.6m shares to Hester – which he has since waived – but said the decision to award the bonus had been made earlier than usual in an effort to avert speculation about the size of the payout.

“I understand the concern about pay,” Hampton said on the BBC Radio 4 Today programme, acknowledging that the chief executive’s pay was “high”. But he said Hester “has one of the most challenging demanding jobs in the world of business”.

Hester was parachuted in to run RBS after its taxpayer bailout – which eventually amounted to £45bn – in October 2008, a year in which it reported the biggest loss in British corporate history, of £24bn.

Hampton acknowledged that bankers’ pay in general was an issue that needed to tackled.

“Pay has been high for too long … particularly in the banks, particularly in the investment banks, shareholders have done pretty badly and employees have done pretty well certainly over the last 10 years,” said Hampton.

“That needs to be corrected. It actually isn’t a society or fairness issue, it’s a straightforward business issue. Too much of the money has not been going to the right place,” he added.

“I recognise absolutely that some of the pay levels are very high, very difficult for people to understand, but by the standards of this market they are not high.”

The RBS chairman, who has also waived a potential payout of shares worth £1.5m, said: “It was certainly my decision that Stephen Hester should get his bonus.”

“I think it’s true that we underestimated the scale of the public reaction to the bonus award,” added Hampton.

Hester – described by Hampton as a “tough character … extremely able chap” – waived the award of shares late on Sunday night after a weekend of political pressure and a move by Labour to call a parliamentary vote on the matter. RBS is now facing the prospect of paying out bonuses to its investment bankers, from an estimated bonus pool of £500m, at the same time that three-year bonus deals also fall due. The head of the investment bank, John Hourican, is in line for as many as 21.3m shares – worth around £5m.

Hampton also insisted the board had never threatened to resign but he admitted the bank was a “very strange beast” – stock market-listed but yet 82% owned by the taxpayer. “Nobody would set out to design a business of that nature. It’s a difficult construct to manage,” he said.

Hampton said the aim was to get bank “absolutely safe and sound and back on the public markets”.

“Every penny on the share price is £900m on the market capitalisation. Stephen Hester and his team are doing a great job,” Hampton said. At the current share price, the taxpayer is losing around £25bn on its stake.

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Ban bonuses, and Fred Goodwin could have kept his knighthood | Simon Jenkins

Even bankers want the bonus culture outlawed. It’s a conspiracy to extract money from firms that properly belongs to others

Ban bonuses. They are mad. Discretionary gifts to top executives from company funds should be considered a malpractice. Most British directors are paid exceptionally well – over 40% more last year according to one report – and if the result is exceptional that is right and proper. Profits should be returned to those who own them, the risk-bearing shareholders. That is capitalism. If shareholders want any money held back for staff after a good year, it should be shared equally. Governments pass laws on insider dealing, takeovers, labour discrimination and health and safety. Any minister who can’t ban bonuses should pack up and go.

This subject has become politically poisonous in the case of banks not, as Sir Roger Carr of the CBI said on Tuesday, because MPs and others are “corroding trust in the industrial and commercial fabric of our society” by tainting big business as “run by the greedy few at the expense of the many”. As David Cameron has said, the poison is because bonuses in Britain (not elsewhere in Europe) are “out of hand”. It is the bonus culture – not high pay, recklessness or incompetence – that has polluted banking’s public image. Cut out bonuses and I guarantee the rage would subside. Fred Goodwin might even have kept his knighthood.

Bonuses entered British corporate culture in the 1980s as a device for enabling bosses to line their pockets with some of the cash swilling through newly deregulated balance sheets. The habit spread fast, infecting the professions, the civil service, local government, the NHS and even universities. Bonuses became rampant wherever size allowed “HR consultants” with opaque reward packages to run riot. Thus did the ratio of average pay to executive pay at Lloyds bank rise from 1:13 to 1:75. Most big companies followed suit, but banks were way out in front.

The concept of pay incentive is pure sophistry. Top executives are said to be unlike ordinary workers in needing a Pavlovian prize at the end of each year to tempt them to do well what they have already been paid to do well. In some banks, senior staff are being awarded half the gross profits of their divisions. This is not their money. As Tony Shearer, boss of Abbey Protection, boldly remarked on Monday’s BBC Newsnight, a normal person should regard being offered “an incentive bonus” as an insult.

Figures out last week showed that the 1,265 top staff in the eight leading London banks received an average of £1.8m each in 2010, as they struggled to rectify the shambles into which they had plunged their industry two years previously. They are now clamouring for bonuses totalling billions. This cannot be a response to need or entitlement, or even a reward for risk, since the formulas are always fudged to ensure payment. A bonus is a bling status symbol, to be shouted across a City bar or boasted by a trophy wife at a ladies’ lunch. If it were denied to all City employees and a few decided to emigrate, it strains credulity that no one could fill their shoes.

The RBS boss, Stephen Hester, is said to have been deeply shocked at the vilification of his and colleagues’ bonuses. We might wonder how much reality they bring to running a state bank. More alarming is the suggestion that only giant bonuses will motivate their staff to rectify the gambling losses of the boom years with new gambling profits. Surely the boards of state banks might consider “public service” a sufficient motive in rescuing their own industry from self-inflicted ruin. And what does the head of the CBI say to the hundred former Dresdner employees who are suing for £40m in bonuses for their part in its downfall? Banking apologists should have no more truck with incentive bonuses than they once did with outlawed concert parties, boiler rooms and bond washing.

Capitalism, like democracy, needs constant self-examination to retain its vitality. This is the reason for spotting the Enron moment, when greed diverges from corporate purpose so far as to corrupt motive and destroy credit. The past week has seen a mountain of exculpatory rubbish on bank bonuses. Yet the industry seems immune to shame, political attack, government admonition, Bank of England pleading or public contempt. The two RBS bosses relented on their bonuses only when confronted by the modern equivalent of a Gordon riot. This is money, we should remember, that properly belongs to shareholders, customers or taxpayers, not to directors.

The government and others have put forward several suggestions intended to end the bonus culture. Cameron has mooted shareholder activism, self-restraint and greater transparency. His business secretary, Vince Cable, wants AGM votes on performance-related pay deals. Much of this is familiar, like the 12-point plan of the High Pay Commission and corporate reformers since Cadbury and Greenbury in the 1990s. All of them fear harming the geese that supposedly lay golden eggs. All are timid.

Nothing happens for a simple reason that the practice is wholly outrageous. While JK Galbraith rightly called high executive pay “a warm personal gesture by the individual to himself”, a bonus has little to do with any incentive, except sometimes as a goad to short-termism. It is more akin to a conspiracy to extract money from the firm that properly belongs to others.

The much vaunted “free market” is no discipline here. The free market in banks collapsed four years ago, and had to be sustained by government money. The free market in derivatives was distorted by insurance, and that in insurance by state guarantee. The free market in executive pay is rigged by the oligopoly of remuneration cabals and corrupted by tax havens. As Gandhi said of western civilisation, a free market in banking “would be a very good idea”.

Ask honest bankers about this state of affairs and most will hang their heads and moan. The bonus culture is beyond the power of any one person or bank to end. It poisons staff relations and hooks traders on risk. It is driving politicians towards transaction levies and higher taxes on incomes, wealth, property and offshore activity. Is that what bankers really want?

Past governments banned insider trading in response to blatant abuse. Now the authorities should ban insider bonuses. Let honest salaries take the strain. When I asked one banker how he would react to that, he said he would sigh with relief.

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Miliband denies banker ‘witch hunt’

CBI chief says ‘vilification’ of bankers such as Stephen Hester risks damaging Britain’s interests

Labour leader Ed Miliband denied he was whipping up a “witch hunt” against bankers as he called for a tax on bonuses and new rules to rein in top pay.

The president of the Confederation of British Industry warned on Tuesday that the “vilification” of bankers such as the RBS chief executive, Stephen Hester, over bonuses risked damaging Britain’s interests.

Following Hester’s decision to waive a £963,000 bonus, David Cameron has urged other executives at the largely state-owned bank to show restraint when they are offered large payments in the coming weeks.

But Miliband said the prime minister was “totally behind the curve of public opinion” on the need for action to change the bonus culture.

Labour will use a parliamentary debate next Tuesday to call for a tax on bankers’ bonuses, he said.

“The whole culture has got to change,” Miliband told Sky News. “We need restraint right across the board in our banking industry and I think business and government should lead that change.

“Change the rules and, as a temporary measure, tax those bankers’ bonuses so the taxpayer can get something back from what I think is still a bonus merry-go-round.”

The CBI president, Sir Roger Carr, warned that “populist” attacks on City “fat cats” risked driving away talented people and investment from the UK.

Hester took on a massive task in the public interest when he took the helm of RBS after the bank was bailed out by the government in 2008, said Sir Roger in an article in the Times.

“The chances of enticing others to take on difficult tasks of national importance have undoubtedly been jeopardised,” wrote the CBI chief.

“Not by the remuneration he didn’t receive but for the vilification he did. This cannot be in the long-term public interest.”

Negativity over top pay risks damaging the business environment, warned Carr.

“If corporate Britain is to thrive and attract the most talented people in our society, politicians must make it clear that business is valued and respected for the standards it sets as well as the wealth it creates,” he said.

Miliband said he disagreed with Carr.

“It is definitely not a witch hunt,” said the Labour leader. “Take the case of RBS. We have figures on small business lending which say RBS is not meeting its targets; we have a lot of evidence that bonuses are being paid out not for exceptional performance – as they should be – but for people doing their job.

“I think this culture is going to have to change, and I think there are lots of people in business who recognise this and who say, ‘Actually, we need banks and a financial services industry that is properly going to serve industry and not serve itself’. That has got to change.”

A number of executives in RBS’s investment branch are expected to be offered share packages of more than £1m in the coming weeks, with total bonuses expected to be around half of last year’s £950m despite a falling share price.

Cameron said on Monday night the “main thing” was to ensure that RBS was turned around to safeguard taxpayers’ investment.

“I think what needs to happen is a sense of restraint, which is exactly what the government urged on RBS in the first place, and they need to do a better job – as everybody has – about explaining how pay is linked to performance,” he told a press conference in Brussels.

“And if performance isn’t the share price, then people need to see very clearly what it is you are doing to sort out that bank, to turn it round, to make it safe.”

The prime minister said the arm’s-length management arrangements for RBS, including the decision to run it as a commercial business, had been put in place by Labour.

He indicated the government would look at those arrangements although it had no plans to change them.

“The main thing that needs to happen is for this bank to be turned round, for its balance sheet to be made safe and for taxpayers’ money, vitally, to be recovered,” said the prime minister.

“Of course, we will look closely at the arrangements that were put in place. We don’t plan to change them but we will look closely at them.

“But I think it’s very important this bank operates under these arrangements.”

Miliband said: “What we see from the prime minister is someone who has shown himself totally out of touch with what people are thinking on this, totally behind the curve of public opinion.

“He was nodding through Stephen Hester’s bonus until Labour forced a parliamentary vote and Mr Hester decided to give this bonus back.”