RBS's Hester gives up £1 million bonus

30 January 2012

The Royal Bank of Scotland (RBS) chief executive, Stephen Hester, has given up his bonus of 3.6 million shares in the bank, worth close to £1 million, after widespread public disgust at the payout led to an intense media and political onslaught.

By mid-morning the shares were down 0.65p, or 2.35%, at 21.09p.

"There is clearly a lot of politics in this, but from a minority shareholder investment case we believe this is a positive," said Bruce Packard, financials research analyst at Seymour Pierce.

"Any attempt by politicians to address the 'principal agent problem' in banking and more clearly align incentives with actual share price performance... ought to be taken as good news for owners of the business."

"We believe RBS now makes sense on a risk/reward basis and our target price is 40p plus," he added, suggesting that despite the industry facing a highly-politicised and regulated environment, there were still very strong profit opportunities.

Lack of public support

Hester finally decided to give up his bonus after Ed Miliband, leader of the Labour Party, announced at the weekend that he planned a Commons vote in order to denounce the bonus. Faced with a lack of public support from the government Hester would have faced another round of mauling by MPs.

The FTSE 100 was weighed down by bank shares on Monday 30 January, as investors continued to be frustrated by the lack of resolution to the Greek debt crisis. The talks over the weekend failed to produce any tangible results, despite confident remarks at Davos by Olli Rehn, the European commissioner for economic and monetary affairs, that a resolution with holders of Greek debt was close.

Despite its 83% stake in the company, the UK government had struggled to place pressure onto the board of RBS over pay awards – although the raising of stakes witnessed with Hester may deter other executives in government-backed financial institutions from accepting large rewards.

This article was written for our sister website, Interactive Investor

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