RBS board blackmail government into giving bonus

Discussion in 'Politics' started by dandelion, Jan 27, 2012.

  1. dandelion

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    The news right now is debating the question of the bonus announced for the chief executive of RBS, Stephen Hester. Just under £1 million.

    BBC News - RBS chief Stephen Hester's £963,000 bonus criticised

    BBC News - Treasury feared Hester and board would quit


    It would appear the board threatened to resign if they did not get their bonuses. I have seen one report which says Hester's was reduced from 1.5 to 1 million. In March the bbc reported he would get £9 million worth of shares as a bonus during his agreed period in charge. So far the share value has fallen 1/3, eroding the potential value of his bonus, but I guess since the share price is above zero he must have done something to deserve a bonus? If the share price crawls back to where it was before he took over, his payout will be worth a lot more.

    One lib dem minister has come out and said Hester should refuse his bonus. His contract entitles the government to refuse to pay one. Another minister argued that the contract lists what he is expected to do to qualify for a bonus and although the share price has fallen rather than risen, he has accomplished other things like reducing the banks exposure to risk. Someone else suggested this ought to be an ordinary part of his job for which he is paid his ordinary salary of £1.2 million. Is it expected that for a paltry sum like that he would do no more than run the bank into the ground?

    The british government is telling everyone else they must accept lower wages. This man gets a bonus big enough to set up most people for life for doing no more than he was employed to do. Why does this deserve any kind of bonus?

    Time to stop giving in to bank blackmail?
     
    #1 dandelion, Jan 27, 2012
    Last edited: Jan 27, 2012
  2. dandelion

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    no takers on this one, i see. The plot has thickened, with the government several times revising its story.

    First they said they could not stop the bonus as a matter of the chief exec's contract. Then someone published a copy of his contract, which said the remuneration committee had the power to give him a bonus if they chose, or not. Since the government said it had knocked down his bonus from what might have been the full possible amount of 1.5 million to 1 million, presumably that meant the remuneration committee at first had no doubt he had eant his full bonus. Despite a failure to increase the share price, or to increase lending to industry which were both targets listed in his contract. Not to mention sacking thousands of people?

    Without settling the exact question of what the contract permitted, it was now suggested that at the forthcoming shareholders meeting the government should simply vote to oppose the bonus payouts, since they are currently 80% shareholders. The government responded by saying that surely no one would want them to interfere in the running of a bank which was being prepared for sale so as to recover the government money used to prop it up.

    Hmm. I'm not sure how many people wanted a penny spent on propping it up, but Im pretty certain a majority do not want any of that money spent on bonuses. The government fell back to the idea that the exec had been hired after the bankruptcy, so it wasnt his fault, and had been hired especially to sort things out at terms agreed then and less than he might have earnt where he was. By far their best excuse so far. An interesting conflict between the man getting the amount freely agreed to, and the patent injustice of anyone getting so much compared to the national average. Much emphasis on his unique abilities justifying the pay, but I have heard nothing yet to show what those are more than that he already had an overpaid job.

    Meanwhile, just to muddle things further, the chairman of the company had come forward and voluntarily given up his own £1.4 million bonus. No one seems to have mentioned him yet, but since his bonus was already bigger, perhaps this is not so surprising. If the governments latest argument was valid that the chief exec had been hired after the crash to fix things, maybe he was the only person in the organisation who deserved any bonus.

    This whole thing smacks of exactly the same problem as MP's expenses. Their expenses were not originally granted as expenses but in lieu of more pay. Here we seem to have exactly the same situation. The 'bonus' is not regarded as a bonus at all, but something to be paid in all circumstances short of the company being bust and having no money with which to pay it.

    The government has extolled the virtue of cutting bonuses, but in the one case it actually has control of a vompany so can definitely impose the policy it is seeking, it has refused to do so. Hard to come to any conclusion except they have no intention to cut any directors pay by 1 penny.
     
  3. rd62624

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    i am not sure but that's what the occupy movement is about that going here at wall street and thru out america. becuase people are fed up with the bull that being fed to them. and these ceo's are milking the system dry
     
  4. Incocknito

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    He should not receive a bonus. The bank is still 81% owned by the public and I don't remember hearing of any major profit gains at RBS.

    Are the public getting any bonuses? No, the public are having money taken away from them! (via income tax increases, child benefit cuts, etc)

    And if I remember rightly his "basic" salary is £1.2M. His bonus should go to the public since it's the public who are actually keeping the bank open.
     
  5. Drifterwood

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    It offends me on some level that RBS still exists.

    The current guy has actually now turned down his bonus. The previous guy, hero of Brown, had bonuses way, way over this and nearly brought the Country down.

    I would have taxed him and the other RBS bonuses at 81% (which is what we own of the company).
     
  6. dandelion

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    As I understand it, the chairman of RBS has turned down his bonus of £1.4 million, but the chief executive Stephen Hester is still refusing to do so.

    I suppose he may not be so worried about not getting a mere £1 million but may be more concerned about not getting the £7 million odd which apparently he is in line for next year. All on the asumption he is entitled to a bonus, of course, but since he does not seem to have met all his targets now (obviously, the share price has crashed) and the board left to itself was going to give him a maximum bonus anyway, I reckon he is expecting to get every penny of the money.

    Minister Ian Duncan Smith has now also come out and said he believs the guy ought to hand back the money. He is on the side that says although he thinks he shouldnt get the money, he also thinks the government should not take any action to prevent him getting it. Maybe the government should apply the same logic to civil service pay and pension schemes it is currently slashing? Leave it up to the people concerned if they are going to hand back the money?

    The TV news just said that the guy's parents are on record as saying they thought he got paid too much.

    The was an interview this morning with someone representing pension funds who said they intend to take action to cut executive pay and bonuses wherever they can. Amazing that they have finally creaked into actions but the guy also sounded sceptical about how much they might accomplish since he said they could only affect matters which came to a vote before them.
     
  7. titan1968

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    This is what he gets for sacking tens of thousands of employees and making a profit. It seems to me no one should be sacked if profits are made. Now these same people will receive Unemployment Insurance benefits. How does this benefit the State? To add insult to injury, this bank is a Crown corporation. This situation is totally unacceptable. Off with their heads I say!!!:fight::fight::fight:


     
  8. Jason

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    Hester has also turned down his bonus.

    We do need to address issues of pay/bonus - but not just in banks. We pay absurd sums to footballers. How are these justified? Ditto celebrities.

    We also need to address the special issue of bonuses being paid to London Transport workers who are kind enough to work during the Olympics. The total of their planned bonuses dwarfs the RBS bonus issue. These will be paid by the taxpayers to some of the country's most highly paid workers.
     
  9. dandelion

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    Really? london transport workers are getting million pound bonuses? If others are getting an extra bonus just for doing their job, why shouldnt they? Thats the extra point here ..on top of the issue of why these people get paid so much. There is only one reason they do, its because banks are rich and can afford to pay. If banks actually had to compete for business we would not see this kind of behaviour.

    Havnt heard details of the recent developments but did hear someone suggesting we now have to deal with everyone else at RBS earning similar amounts. Now, what sort of pension plan has he got, how much is that worth?
     
  10. Jason

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    @Dandelion, the point is that none of us really know how to deal with the bonus culture at RBS, for at the moment the government owns but does not run RBS. The existing bonuses are awarded by the board - who have a legal right to award them. Labour (rightly) left them with this right when the government took over RBS and the Conservatives did not change it last April.The government could if it so wished sack the present board and appoint its own members (ie the government would both own and run the bank) and in this way stop the bonuses.

    But if the government did decide to run RBS directly the share price would plummet. Instead of millions of pounds in bonuses we could well be looking at a loss to the government - and to the taxpayer - of billions. The change of the whole team running RBS would be catastrophic. There are also big issues around whether the government could find competent people to run a bank that has a balance sheet bigger than the UK if they were not paid bonuses. All in all the fall in share price would reflect a real problem rather than being just perception.

    The sensible solution would be to pay the bonuses and not rock the boat, because if the boat goes over we all get wet. Unfortunately I think we now have a tail wagging the dog situation. The government may well find that the issue is a political hot potato and rush to distance itself in the only way possible - by returning a majority of RBS to private ownership. This might lead to selling RBS at a time which is not optimal. It might lead to the creation of some sort of public-private holding company which owns RBS.

    We are not going to resolve issues around the morality of salaries and bonuses through the RBS issue. We risk damaging or destroying RBS and therefore hurting the whole country.

    Meanwhile the bribe paid to Dockland Light Railway workers to work during the Olympics is £2,500. The bribe agreed with London underground is £500 but they are now going to go on strike for more because they have seen what DLR have extorted. The bribe to London overground currently sits at £600. Remember that these workers are already among the highest paid in the UK - an underground driver gets over £100 per hour - and that there are tens of thousands of workers set to receive the bribes.
     
  11. dandelion

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    Philip Hampton the RBS chairman is now on record as saying the bonuses are not justified. Which rather begs the question of why his remuneration board has decided to award them. If the actual chairman thinks they are unjustified, why are they being offered?

    The bonus culture is out of control, and frankly harmfull to the wider economy. I would much prefer a larger salary and smaller or no bonus even if the total is the same. One of the reason for doing all this is no doubt to down play the real size of the total (sounds much sweeter to say someone gets paid £1.2 million plus bonus, than £3 million, doesnt it?). Im no expert on this, but I suspect the other reason is simply to avoid paying tax on salary.

    I see the opposition is getting onto the bandwagon of banning bonuses, and no doubt the country would agree. I dont know that an absolute ban makes sense, but obviously a change of tax regime to ensure it becomes more tax effective to pay salary. Then just watch bonuses melt away. While we are at it, golden parachutes need to go too.

    RBS is not simply a nationlised industry put back on its feet waiting to be sold off. The eu right now is in the process of reorganising itself to reduce the chance of a crisis like this happening again. Similarly we need to reorganise banks to the same end. Either banks have to pay to governments the true cost of CDS which the government currently supplies unpaid for all the bank's business, or banks must be prevented from taking the risks which give rise to these losses.

    The government has the opportunity here to reform a major player in the banking sector because it controls it. If it refuses to reform the part of the banking sector which it actually controls, I dont see the other banks reforming themselves voluntarily. If the government does not lead by example, nothing is going to happen. What the government is really saying here is it wants to put everything back exactly as it was before. No one except the banks wants this.
     
  12. Jason

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    The UK tax position on bonuses is the same as any other salary - bankers are not taking bonuses to avoid paying tax. Maybe it would be better to pay them a salary and be done with it. I've just heard Miliband request that the bonuses are taxed. Well they are. He's making populist comments which are divorced from the truth.

    I don't see how we can change the system quickly. Yes we do need a class of people who are prepared to work for the public good for no or low pay - and yes we do already have a lot of these in the UK. Something like 90% of our judges (magistrates) are unpaid. Many work in the voluntary sector. Personally I would like to see MPs unpaid. Maybe VCs of universities, top military people, most or all judges, top civil servants. And footballers! But we do need a system where people who give their time as volunteers are respected by society, and right now we don't have that. The level of venom directed at bankers, poiticians and just about anyone who does a senior job is such that no-one would undertake them without a life-changing salary.

    Hester may well have turned down his bonus for altruistic reasons. Or he may have decided that the level of additional security he and his family would need (and for which he will pay) would cost more than the bonus. If we are going to make bankers scapegoats for the shortcomings of the nation then we have to pay them astronomic salaries.

    I agree change is needed, but it cannot be quick. All we've got from the RBS bonus mess is a fall in share value which has already cost the nation billions, and a near certainty that the government will come up with some politically attractive solution which will make people rejoice that a few bankers haven't got their bonus - and cost the nation yet more billions. Miliband's achievement.
     
  13. dandelion

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    If currently bonuses are taxed exactly the same as ordinary pay, that would explain why it makes sense to have an additional tax on 'bonuses'.


    from memory MPs get about £60,000 plus another £30,000 in (untaxed) expenses. I continue to object to what I regard as fraudulent expenses, which are for things like buying a second home in London which ordinary people would class as pay. The total pay then is about £100,000 and I have always regarded the fraud as the way MPs have tried to pretend that their pay is half what it really is. However we are talking about 1/10-1/100 the pay of these directors and other bank employees.

    I see the 2010 numbers for the PM are £133,000 prime ministers pay plus £66,000 member of parliaments pay, as he is doing both jobs. So about £200,000 (plus expenses and perks). Running the country gets you less than 1/10 for running a bank. Hmm. But all this is meaningless, the question is whether in a country of 60,000,000 including 3,000,000 unemployed there is no one who could do this job well for a lot less than £2,000,000. I think you might find a lot of competent people who would be happy to be PM for less than £200,000 too. However, I do not think these jobs should be unpaid. The current parliamentary salaries put the people concerned in the top 1% of earners in the country, which is pretty high, but it would be unreasonable to ask people to do full time jobs for nothing. It would prevent people taking those jobs unless they were already rich. The salary should be pitched at the level an ordinary person would consider themselves well paid (pertinent to consider the current debate over average national household earnings of about £36,000)

    The level of venom has specifically been whipped up by the high salary and then the cheek of demanding an even higher 'bonus' for failing to do anything more than a workmanlike job.

    His decision seems to have come after Milliband said he would be raising the question in the house of commons and asking parliament to cut his pay. So it seems more he gave it up before it was taken away. This way, he at least gets the credit for agreeing to surrender it. Most interesting to me is that he has agreed not to get it. There was talk, not least from the government, that if the board were refused a bonus they would all resign. Well, the chairman has said they didnt deserve bonuses before returning his and the chief exec has now surrendered his voluntarily without resigning. We await events on others bonuses which havnt been announced.

    Yes, I would judge he was heading into brick-through-window territory. Which says what the country thinks about this.

    we should pay them astronomic salaries because they are greedy and have an overvalued sense of their own worth? (actually, there seems to be growing evidence they know full well their own worth and that they are overpaid)

    The price seems to have been rising a bit through January. Dare I suggest that is due to the general improvement in the eurozone crisis, which has boosted bank shares? The actual person occupying the post of chief exec seem entirely irrelevant to the share price and solvency of the bank.

    well, more Thatcher's achievement, I think, since she started bank privatisation and deregulation.
     
  14. Redwyvre

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    dandelion, look up "A Fight to Make Banks More Prudent" NYT Dec. 21, 2011.
    This article addresses the topic of bank bonuses. I think the main idea centers around the "fact" that banks have been paying out bonuses with "borrowed" money rather than "profit" money. In the future they will try to do less of this sort of thing. It all seems so surreal to me. You'll be better at summarizing it than I.
     
  15. Jason

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    An additional tax on bonuses would be complex - the idea that they are treated just as any other salary works. The idea of higher tax on very high salaries/bonuses doesn't work as the organisations giving the very high salaries/bonuses treat them as a take-home sum. For example I think if you were to work out the tax and NI on Hester's bonus you will find you are left with a round figure (is it half a million?) - the board has decided on the net and payroll has worked out the gross figure. If you introduce higher tax then the gross for bonuses is increased.

    We need a root and branch rethink about salaries in the UK. On the one hand we have silly salaries at the top, on the other a very thin minimum wage - and many earning under this. True the UK disparities are less than in many nations. But we should do better.
     
  16. dandelion

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    so matters roll on, and now the former chief exec, Fred Goodwin, who was the one to bankrupt the company in the first place,has been stripped of the knighthood he had been given. Fair enough if he got the knighthood in the first place because he was doing such a good job.

    Question though, is how man more got honours for doing what turned out to be a bad job? Goodwin had the agreement of his directors at the time and his wasnt the only bank in trouble.
     
  17. Jason

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    Goodwin was a frequent visitor to number 11 and had the agreement of Balls and Brown for the policies he pursued.

    I don't think he should have done what he did and I don't think he should have got a knighthood in the first place. But there's something a bit "third world" in one government stripping the honours awarded by its predecessor. Goodwin did not break the law, which is the usual reason. We strip honours from someone like Mugabe for crimes against humanity. By contrast Goodwin acted with the agreement of ministers, basically doing their bidding. What we've seen is close to a lynch-mob. The public find a scapegoat - bankers - and demand blood.

    The political party that should have been standing up for him - basically by saying it is a wrong precedent to strip honours - is Labour. They haven't, and it would have been a political catastrophe for the Conservatives to support him. So whom do the mob go after next? Maybe we should all scan the past honours lists for people who have not broken the law but against whom we can whip up some "righteous" indignation.

    By the way has anyone noticed that Blair has NOT got a knighthood? There's been time to do this, and it is actually quite odd that he hasn't. Of course I would have him in court answering charges of war crimes...
     
  18. superbot

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    It beggars belief that this issue is still far from unresolved considering how much public revulsion there has been.It also beggars belief that he once was so close to Downing Street and its various inhabitants.Kinda reminds of Diversity Dave and his cosy weekend horse rides with Rebecca Brooks.WHY are leaders so hell bent on sucking up to these pigs in the first place ,where's their judgement?? What next Jeffrey Archer as the Con's candidate for Mayor of London?! Oops,they already did that!!
     
  19. Jason

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    In a democracy people vote for the government. Labour won three elections on the trot, including an election after the second Iraq war. They had democratic legitimacy.

    RBS had full support from Labour. Fred-the-Shred worked closely with Brown (as Chancellor) and Balls. Goodwin was appointed by Darling. Labour had been in government for many years - and therefore had a chance to change banking regulation well before RBS got into problems. When the Labour government bought up RBS they made the decision to allow the directors to decide on bonuses.

    IMO the problems of RBS cannot correctly be characterised as something "the bankers" have done, or even as something "the government" has done - rather in a democracy every one of us takes responsibility.

    I haven't seen a single newspaper article looking at the slide in share value at RBS since the bonus issue broke. We the people have lost billions in value to our bank - something that will cost every one of us £100+. Oh and we've saved a million in Goodwin's bonus, something like a penny farthing. Right now Cameron must be desperate to get RBS back into private ownership asap so that he doesn't have another political headache over bonuses. Probably the bank will be re-privatised too early with the tax payer taking a knock. But what else does Cameron do? Yes he could appoint the board and stop bonuses - and watch RBS become a penny share. There is nothing nice about markets. If we really want to make a stand against RBS bonuses (and ban them) then that's fine - but every one of us will be paying £1,000+ in extra tax.
     
  20. RodRingo

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    They should keep their bonuses. I'm willingly to say those are why people even enter investment banking in the first place.

    However being quite nationalised, they shouldn't be giving super sized bonuses unless its truly deserved. Last I checked only the board members of the RBS believed Hestler deserved it; all the political parties didn't.
    Mr. Cameron even said they should consider the amount they award with bonuses. In other words no crazy bonuses, unless the taxpayer and their govt representatives think they're deserved.

    Its purely the state factor, private firms like Goldman Sachs or HSBC have no issues with the amount they award as they aren't using tax payers' money.
    This is why there was an outrage with the various MP scandals; tax payers' money being used.

    Though I foresee RBS possibly lowering their internship requirements as there'd be less people who'd want to go with such a fuss over bonuses with the firm. They'll possibly be like a 'stepping stone' bank. That's my opinion, however.


    I would be firmly against the ban on bonuses as its what draws people to the business. Very talented people if you look at the requirements for internships and graduate programmes and the skills you'd need to prove that you have.

    The bonuses are like a reinforcer to keep 'em going, esp. as the British govt does take a chunk of your earnings with tax. In Dubai, they don't even get bonuses due to the tax free nature.
    The idea is to keep the talent, you've got to keep the bonuses otherwise they'll go elsewhere as you've seen; bankers tend to move all the time so its no problem.
     
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