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RBS chairman defends Stephen Hester’s near-£1m bonus

Sir Philip Hampton admits taxpayer-owned bank underestimated scale of public reaction to award of 3.6m shares to chief executive – which he has since waived

Royal Bank of Scotland’s chairman has defended the near-£1m bonus awarded to its chief executive Stephen Hester by insisting he was doing a “great job” and paid less than his peers.

Sir Philip Hampton admitted the bank had underestimated the scale of the public reaction to the award of 3.6m shares to Hester – which he has since waived – but said the decision to award the bonus had been made earlier than usual in an effort to avert speculation about the size of the payout.

“I understand the concern about pay,” Hampton said on the BBC Radio 4 Today programme, acknowledging that the chief executive’s pay was “high”. But he said Hester “has one of the most challenging demanding jobs in the world of business”.

Hester was parachuted in to run RBS after its taxpayer bailout – which eventually amounted to £45bn – in October 2008, a year in which it reported the biggest loss in British corporate history, of £24bn.

Hampton acknowledged that bankers’ pay in general was an issue that needed to tackled.

“Pay has been high for too long … particularly in the banks, particularly in the investment banks, shareholders have done pretty badly and employees have done pretty well certainly over the last 10 years,” said Hampton.

“That needs to be corrected. It actually isn’t a society or fairness issue, it’s a straightforward business issue. Too much of the money has not been going to the right place,” he added.

“I recognise absolutely that some of the pay levels are very high, very difficult for people to understand, but by the standards of this market they are not high.”

The RBS chairman, who has also waived a potential payout of shares worth £1.5m, said: “It was certainly my decision that Stephen Hester should get his bonus.”

“I think it’s true that we underestimated the scale of the public reaction to the bonus award,” added Hampton.

Hester – described by Hampton as a “tough character … extremely able chap” – waived the award of shares late on Sunday night after a weekend of political pressure and a move by Labour to call a parliamentary vote on the matter. RBS is now facing the prospect of paying out bonuses to its investment bankers, from an estimated bonus pool of £500m, at the same time that three-year bonus deals also fall due. The head of the investment bank, John Hourican, is in line for as many as 21.3m shares – worth around £5m.

Hampton also insisted the board had never threatened to resign but he admitted the bank was a “very strange beast” – stock market-listed but yet 82% owned by the taxpayer. “Nobody would set out to design a business of that nature. It’s a difficult construct to manage,” he said.

Hampton said the aim was to get bank “absolutely safe and sound and back on the public markets”.

“Every penny on the share price is £900m on the market capitalisation. Stephen Hester and his team are doing a great job,” Hampton said. At the current share price, the taxpayer is losing around £25bn on its stake.

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