As leader of the opposition with an eye for an opportunity at the height of the banking crisis in the autumn of 2008, he was in the vanguard of those demanding the most drastic action against the speculators who had suddenly become Britain's Most Wanted. Often during that dramatic period, the youthful Conservative leader assailed the then prime minister, Gordon Brown, over the need to rein in the excesses of the City.
If taxpayers were stepping in to save the banks, he argued, the least they could expect in return was "no more irresponsible behaviour, no more inappropriate dividend policies" and, significantly, "no more indefensible bonus packages". "No one wants banks to fail," Mr Cameron told Mr Brown in October 2008. "But also no one wants rewards for failure."
Barely 18 months later, Mr Cameron made it into power after fighting an election on a manifesto pledging to "empower the Bank of England to crack down on risky bonus arrangements". His coalition partners had promised to "ensure that the bonus system can never again encourage banks to behave in a way that puts the financial system at risk or offers rewards for failure". Together, incessantly, they vowed that, at last, Britain was all in it together.
Less than two years on, the saga over Stephen Hester's swelling remuneration package demonstrates that we aren't. Mr Cameron has spent the past week tying himself in knots over the spectacle of Royal Bank of Scotland – a loss-making, largely state-owned bank – preparing to pay its chief a bonus of nearly £1m – on top of his £1.2m basic annual salary. Mr Cameron's discomfort is likely to increase dramatically with revelations about Mr Hester's extra bonus of shares worth £3.3m on top of the £35.54m in pay, share options, pensions and bonuses that he has received since joining RBS in 2008.
For the young opposition leader in 2008, the answer would have been simple: RBS should be ordered not to award Mr Hester the bonus. The Labour leader, Ed Miliband, has latched on to public fury, and demanded that the payout be withheld. But Mr Cameron, who days ago had backed calls for the former RBS boss Sir Fred Goodwin to be stripped of his knighthood, cannot bring himself to ensure Sir Fred's successor does not receive a huge bonus.
Industry experts insist that the Hester package is in line with the sector. In fact, they argue that most bonuses are expected to be paid out; while they are not in practice a reward for success, "not getting them is punishment for failure". Mr Hester is also credited with sparking a recovery at RBS and any share options awarded this year will not be available to him for three years.
The Government maintains that remuneration is a matter for RBS and, even if Mr Cameron wanted to intervene, he is prevented from doing so by the contract agreed by Labour following Mr Hester's arrival in 2008.
Nevertheless, the Prime Minister appears uncharacteristically out of step with the public mood. Only 7 per cent of Britons think a chief executive of a FTSE 100 company should be paid more than £1m a year, according to poll findings in The Independent on Sunday today, and even the Conservative Mayor of London, Boris Johnson, said "the Government should step in and sort it out". Mr Cameron risks finding himself stranded on the wrong side of a critical political argument.
The Government's insistence that the bonus is a matter for Mr Hester and the RBS board is a particular disappointment, because Mr Cameron had lately tried to force himself back to the front of the banker-bashing fraternity.
In his first interview of the year, as Labour floated its own ideas for executive-pay reform, the Prime Minister revealed plans to give shareholders the right to veto remuneration packages. The ambition to engender more responsibility in the business world was underlined later, when he spoke of his vision of "moral markets".
Yet, barely a week on, Mr Cameron was presiding over attempts to limit benefit payments to some of the poorest in society. The general expectation, at the start of a week when the Government was to set out its stall against excessive pay, was that Mr Hester's wage slip would be in the line of fire. But, when Business Secretary Vince Cable's reforms were finally presented last week, with no guarantee of government intervention to impose lower pay packages, they were not universally applauded.
And when the RBS board met to decide remuneration packages, its chief executive was promised £963,000 of a possible £1.6m. Forcing the amount below £1m was not enough to put an end to the objections. The claim of the Liberal Democrat Foreign Office minister Jeremy Browne that there was "a question of honour" over whether Mr Hester should accept the package was an attempt to shift responsibility from politicians, but it disclosed the unease felt by some members of the coalition.
When Mr Cameron was confronted with questions about the bonus during a press conference yesterday, he looked uncomfortable. However, as insiders point out, he was keen to make sure his quote was "punchy" – and he also tried to steal some of the credit for the reduction already made.
He dismissed Labour's call for him to use the Government's "golden share" to vote down the bonus awards, saying: "Stephen Hester was brought in by the last government ... to turn round RBS .... The Government has made its views known and that's why his bonus was cut in half compared to last year."
It was a far cry from the man who had called for bonuses to be withheld less than four years earlier. The bonus approach he has developed in government is an extension of his infamous "nudge strategy"; less about compelling individuals to fall in line than encouraging them to change their behaviour. Whether it works on the hardened minds of the City remains to be seen.
How Hester made a mint: Royal Bank of Scotland's millionaire huntsman
He is the son of a university professor, went to a Yorkshire comprehensive and began his working life in a Polo mint factory. Yet Stephen Hester sailed through Oxford into a business career that has given him access to the rich and powerful and amassed him a multimillion-pound fortune.
While the Royal Bank of Scotland boss has publicly lost £600,000 of his annual bonus this year, it has emerged that he may also have given up his claim to a plush marital home valued at over £8m in Holland Park, London.
Mr Hester's name is no longer on official documents detailing ownership of the five-bedroom mansion he shared with his now estranged wife.
But the banker retains access to a ski chalet in Verbier – and the 350-acre, £7m Broughton Grange estate, in Oxfordshire, where, in 2008, he hosted a lavish hunt ball for scores of guests. The oft-used photograph of Mr Hester on a horse, in full hunting gear, highlighted complaints about his lavish spending while in charge of an institution that had been crippled by the financial crisis.
Mr Hester, who is 51, also enjoys tennis, running, shooting and skiing.
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