David Prosser: Compromise is the only hope for RBS

Outlook It looks like the battle is still on at Royal Bank of Scotland, where senior management are refusing to back down on their right to pay staff the bonuses they deem necessary to keep the best people at the bank. Chief executive Stephen Hester yesterday railed against the "politicisation" of the institution he now runs.

What Mr Hester doesn't quite seem to get is that the politicisation of RBS is not new: the moment the taxpayer was forced to ride to the rescue of his bank more than a year ago, it gave up the right to make decisions without political interference at one level or another.

The result of the resolutions cleared yesterday by RBS shareholders is that the taxpayer will own 84 per cent of the bank. Alistair Darling is simply the politician through whom taxpayers' interests must now be represented. It is sometimes easy to forget that listed companies are democracies: if a majority of shareholders want the directors to follow a particular course of action, it is the board's duty to do so (or to resign, if they cannot). In the case of RBS, if Mr Darling were to consult the taxpayers whose money he has pumped into the bank, there is little doubt what their verdict would be on the question of whether to pay bonuses worth up to £1.5bn to employees.

Indeed, following the Chancellor's pre-Budget report last week, bonus payments of that level of generosity are even less justifiable. With a 50 per cent tax on the pots of cash put aside to fund bonuses, paying out £1.5bn to staff would in theory cost RBS some £2.25bn. That's even tougher to defend with the bank still loss-making and unable to restore dividends to shareholders.

As for the insistence of chairman Philip Hampton that there has been no threat of mass resignation by the board, that does not entirely square with his admission that directors have taken legal advice on what they should do if Mr Darling does eventually veto bonuses. The implication is clear: the board, albeit individually, will have to consider its position if it does not get its way.

The hope is that the Chancellor's supertax will deter everyone – both RBS and its rivals – from paying bonuses, thus levelling the playing field. In truth, that hope always looked to be in vain. Some banks will pay bonuses in one form or another to their brightest talent, even if they have to swallow the increased cost of doing so.

RBS therefore has to decide what it can get away with. It said yesterday that 1,000 bankers have quit in the past year because of pay restrictions at the bank, and some further losses will be inevitable. Messrs Hampton and Hester, whether they like it or not, have to work out how much they have to pay to keep the departures manageable – and whether the Chancellor will put up with that.