RBS unveils 400% bonus plan for CEO

By Alistair Dawber

Royal Bank of Scotland announced a new executive remuneration policy yesterday that could see its chief executive, Stephen Hester, paid nearly £5m in bonuses each year.

The bank, which is 84 per cent owned by the taxpayer, outlined the long-term incentive plan in its annual report. The proposal will be put to shareholders at RBS's annual meeting on 28 April, although it will almost certainly be approved.

The lender has already held talks about the scheme with UK Financial Investments (UKFI), the company set up by the Government to manage the state's stake in the bank. UKFI declined to comment on yesterday's bonus announcement.

Under the new scheme, Mr Hester could earn up to £4.8m in share options – a 400 per cent increase on his basic £1.2m salary. The structure will apply to all executives, who will be judged on what the bank described as "substantially toughened" criteria.

Half of the payouts will be based on RBS's economic profit, with the rest judged on its returns to investors. The entire bonus will be subject to clawback provisions, allowing the bank to reclaim payments if its performance deteriorates once bonuses are paid.

"From a behavioural perspective, the remuneration committee must also be satisfied that financial results have been achieved without excessive risk," the report said.

Sir Philip Hampton, the chairman of RBS, said the new scheme would reward senior staff "fairly, appropriately and at market levels for achievement against the targets we have published to make the bank safe, successful and valuable again". The scheme replaces two share incentive plans, which previously paid stock worth a maximum of 300 per cent and 150 per cent of salaries respectively.

However, the changes are unlikely to soothe public anger at the potential scale of bonus payments to bankers. "Any reduction is welcome but this is still a hugely generous package," said Matthew Elliot, the chief executive of the Taxpayers' Alliance.

"Mr Hester still doesn't seem to have realised he isn't running a bank which pays him out of its profits, but running a failed company which spends taxpayers' money. Ultimately, the Government must stand up to the greed of the RBS management and start to use their voting powers to protect taxpayers' interests. At the moment RBS are taking the mickey."

The report also detailed a £72,000 payment made to the former RBS chairman Sir Tom McKillop, who quit less than two months into the financial year after apologising for the bank's near-collapse.

No details of bonuses for less senior staff were given yesterday. Those in RBS's investment banking division, Global Banking and Markets, shared a £1.2bn bonus pool last month as the bank reported a group loss of £3.6bn.

The bank paid more than 100 of its investment bankers more than £1m each, with the average member of investment banking staff taking home £160,000. At the time, Sir Philip said the payments were the, "minimum necessary to retain and motivate the staff crucial to the recovery of this bank".