Hester in plea to staff after bonus ban bankers contact headhunters

UKFI says it is walking a tightrope in capping pay

Royal Bank of Scotland boss Stephen Hester yesterday insisted staff would enjoy "a significantly improved position" in terms of bonuses compared to last year, as headhunters reported a deluge of calls.

Mr Hester wrote to staff after being banned from paying cash bonuses to anyone earning more than £39,000 a year as a result of a second taxpayer- funded bailout. But he said: "For almost all of our employees we have delivered a significantly improved position from the approach that we adopted for performance year 2008. The overall deferral period is shorter and most people will get more of their deferred award released sooner."

On Tuesday he said that the bonus restrictions made the bank "a sitting duck" to rivals such as Barclays who face far less stringent restrictions on what they can pay.

At a hearing before the Treasury Select Committee yesterday, UKFI – which oversees the Government's stakes in the banking sector – admitted that it was "walking a tightrope" by seeking to limit bonus payouts at recovering banks while trying to stop talented staff leaving.

John Kingman, the outgoing chief executive, said: "We have to walk this tightrope in which we reform the cultures ... but we cannot afford to be in a position where the banks lose so many people that we start to lose serious value."

That was confirmed yesterday by a headhunter, who asked not to be named. "We've had an awful lot of calls," they said. "There is demand for investment banking talent out there at the moment. It's going to be a busy time for us."

Despite this RBS closed the day up 0.54p to 36.47p. It initially recovered much of the 7 per cent it lost on Tuesday following the publication of details of the bailout and the sell-offs that will have to be made to satisfy EU regulators. But the shares quickly lost ground.

Mr Kingman insisted that UKFI's holding in the banks over time would be sold at a profit and that he expected there to be "healthy interest" in the assets to be sold by RBS, Lloyds and state-owned Northern Rock

UKFI, set up last December, will hold 84 per cent of RBS on completion of the rescue deal announced on Tuesday. It has 43 per cent of Lloyds, owns Bradford & Bingley's loan book and will own Northern Rock from the end of this year.

UKFI would not reveal the size of the RBS bonus pool, which will be released in the form of debt and shares to staff over time. They will be able to sell their interest in those shares when they are released to generate cash. Mr Hester said the rescue package was "a giant step forward for RBS and our people".

He added: "The uncertainties of our situation and our environment are being dealt with one by one. We are making huge progress. We remain committed to that continuing. We remain determined to pay fairly and competitively where performance so merits."