The stupidity behind the decision stems from what we are asking Mr Hester to do. He came in to run RBS after Fred Goodwin left in disgrace in 2008. His task is to rid the RBS books of the bad debt, bring back profitability and put the bank into a position to be sold off to re-coup the taxpayers money.
He's doing the first of those two items during a terrible economic climate. The share price is bouncing along, similarly to other banks. How are we going to re-coup the taxpayers money? The share price has to rise, valuing the company higher, and enabling the shares to be sold off for a higher price.
Which brings me back to the bonus. The bonus was often quoted as £963,000, but the bonus wasn't cash but shares to the value of £963,000. The shares were not exercisable until 2014, meaning he can't sell the shares now. We need the share price to rise, Mr Hester's bonus would have increased at the same time. The personal monetary incentive for Mr Hester was therefore tied to the future performance of the bank. We benefit if he benefits.
Now he's been stripped of the bonus, what's his incentive? Only his reputation is now staked, but who would blame him from walking away from the job when his compensation package is the subject of the lynch mob. And if he did, who would want to step in - when you could get a banking job in the private sector without the hassle.
We've just shot ourselves in the foot.
As an aside Chuka Umunna, the Labour shadow Business Secretary, has been saying that RBS employees should be treated as public sector employees. No, completely disagree. If RBS is going to become profitable and get the taxpayer its money back it is going to need to compete against the private banks. Mr Umunna's plan would lead to a demoralised staff, leaving in droves and the ultimate failure of RBS.
Squiffy.
No comments:
Post a Comment