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RBS chief Stephen Hester waives controversial bonus of nearly £1m

Banker bows to pressure from across the political spectrum to decline 3.6m shares offered to him by bank’s board

Stephen Hester, the chief executive of Royal Bank of Scotland, has bowed to intense political pressure and waived a bonus of nearly £1m.

After a weekend of intense scrutiny of the bonus, culminating in a move by Labour to force a Commons vote on the payment, Hester concluded that he would not accept the 3.6m shares that the bank’s board had decided to award him.

Brought to run the bank after it was bailed out in October 2008, Hester is understood to have felt his pay was too much of a distraction .

Labour leader Ed Miliband said: “Stephen Hester has done the right thing. It is a shame that a feeble, out of touch David Cameron did not realise he should do the right thing and stand up for the interests of the British people.

“Labour was right to seek a parliamentary vote on this so that the people’s voice could be heard. But the debate about fair executive pay and responsible capitalism is only just beginning. We need a government that will tax bankers’ bonuses and bring responsibility to the boardroom.”

Hester is still expected to be entitled to another shares bonus that could potentially reach £6.4 million based on a long term incentive scheme that is approaching the point at which it can come into effect.

Chairman of the Financial Services Authority Lord Turner, who said last week that excessive bonuses are “not good for society”, will report to the Commons Treasury Committee on RBS tomorrow.

Liberal Democrat peer Lord Oakeshott said Hester had “bowed to the inevitable” but kept up the pressure on prime minister David Cameron, who, he said, “had shown very poor judgement”.

A political row had erupted over whether the government could have done more to stop any bonus being paid to Hester. Treasury minister Danny Alexander claimed on Sunday that the only way to halt bonuses was to take direct control of the bank, 82% of which is owned by taxpayers, which would heap further losses on the public.

Pressure had also come from the work and pensions secretary Iain Duncan Smith, who had said the decision not to take any bonus lay with Hester. “It’s for him individually, obviously, to make a decision about that. As a member of the government I don’t have a collective opinion on that, but I must say to you nobody would be happier than the government if he took such decisions, but it’s up to him.”

These remarks made on the Andrew Marr show and the decision by Labour to force a vote are believed to have influenced Hester’s decision. Labour sources had intended to hold a vote on 7 February in an opposition day debate, drawing comparisons with the vote that accelerated the pace on News Corporation’s proposed – and subsequently withdrawn – takeover of BSkyB in the summer.

David Cameron had also put the onus on Hester. Speaking at Chequers, the prime minister said: “It’s obviously his decision. My decision is to make sure the team at RBS get on with the job of turning the bank round. We made our views very clear on the bonus and that’s why it was cut in half compared to last year.”

Scottish first minister Alex Salmond said: “This is a welcome development but it should never have come to this stage as these circumstances cannot be left to individual decisions. They must be a matter of public policy.

“The sustaining of public services, and therefore economic recovery, requires pay restraint across the public sector.

“How can that be maintained against the background of huge bonuses being paid in organisations which are still within the public sector?”

Salmond added that both the coalition government and previous Labour government shared responsibility for the situation.

“Labour negotiated the very deal with Stephen Hester that they have complained about, while the coalition parties huff and puff about shareholder democracy but stand by idly when they carry responsibility for the public shareholding,” he said.

“They also have the option of a further tax on bonuses but instead all the Tory rhetoric is on reducing the top rate of tax.

“The Westminster parties display the complete abdication of responsibility of political parties out of touch with the public of both Scotland and England.”

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