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RBS, the nationalised bank that regards itself as operating in the private sector

It is hard for RBS to argue that Barclays, not the civil service or the Bank of England, is the right yardstick for pay

A weekend’s reflection will have told Stephen Hester that the row over his £963,000 bonus was not going to go away. Ed Miliband planned to raise the subject in the House, support among Conservative backbenchers ranged from lukewarm to non-existent and even government ministers, while arguing that their own hands were tied, were adding to the pressure to give up the award.

Some of the damage cannot be undone. Hester could have avoided the political uproar by saying at the outset that he did not wish to be considered for a bonus. He did not, so he will not be able to avoid the impression that he would have taken the money if he possibly could. It’s almost the worst of all worlds for him – little personal credit and no bonus.

It was not all his fault. In Hester’s shoes, you might resent the lack of cover from ministers. The government briefed that a sum of less than £1m would be acceptable but, when the RBS pay committee met that condition, ministers did not go on the offensive to defend the bargain they apparently support – that the best way to maximise the value of the public’s shareholding in RBS is to employ a crew of private sector managers with private sector pay arrangements.

The actions of Hester’s chairman, Sir Philip Hampton, did not help either. He announced he would not be accepting his own bonus under a three-year incentive scheme. On inspection, however, this award turned out to have been next to worthless – the sort of bonus that is easy to surrender.

Hester’s true feelings about the episode are hard to guess. It now looks that, when he took the job in 2009, he severely underestimated the scrutiny that would accompany every annual bonus award.

If the original hopes for RBS had been fulfilled – a quick return to the private sector with the state’s shares sold at a profit – it would have been easier to persuade public that value for money, of a sort, had been secured by making multimillion pound payments to the boss. But the shares fell in value by half last year and privatisation simply isn’t going to happen soon. It’s this factor that may explain the extra intensity in this year’s row.

RBS these days looks more than ever like a nationalised institution that will be on the state’s books for years. In today’s circumstances, it is very hard for RBS to argue that Barclays, and not the civil service or the Bank of England, is the right yardstick for pay. For most outsiders, Hester should count himself lucky that he enjoys a basic salary of £1.2m. Those inside RBS, however, still regard themselves as operating in a private sector.

So don’t be surprised if Hester concludes that his job has become impossible. There will be a second chapter of this affair when RBS awards bonuses to executives below board level – including a potential £4m for John Hourican, head of the investment bank, under a long-term scheme. It is easy to imagine that Hester might regard those payments as a point of principle – the principle being that the RBS board should remain free to set its pay arrangements as it sees fit.

In the meantime, there will be huge pressure on Bob Diamond, chief executive of Barclays, and Stephen Gulliver, his counterpart at HSBC, to surrender their bonuses. The bosses of Lloyds and now RBS have now taken that step. The state owns no shares in Barclays or HSBC – but there is the same sense that bankers who try to collect big bonuses are fighting history and an overdue rewriting of the rules. © 2012 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds