Page last updated at 15:05 GMT, Tuesday, 12 January 2010

RBS boss says even parents think he earns too much

Stephen Hester: "Clearly it's very hard for me to talk about my own pay"

The chief executive of Royal Bank of Scotland (RBS) has defended his bank's pay structure to a committee of MPs.

Stephen Hester faced several questions from the Treasury Committee on expected bonuses and on his own pay package, worth a potential £9.6m.

He said that he was offered the "going rate" for his job but added that even his parents think he earns too much.

He said in some ways RBS, which is 84%-owned by the taxpayer, had "led the way" on pay reform.

Mr Hester said that RBS had historically paid bonuses in cash but the bank had now changed to paying large parts of bonuses in shares.

Stephen Hester, RBS chief executive
Chief executive, Royal Bank of Scotland, 49
Pay package: worth up to £9.6m
Joined RBS in October 2008 from British Land

He was one of three bank bosses being questioned by the committee. The other two were Eric Daniels from Lloyds and Gary Hoffman from Northern Rock.

Bank 'on track'

Mr Hester added that his own pay package was worth next to nothing as the share price of RBS was so low, currently 34.7 pence.

Shares in the bank have fallen for the past three years. They declined 41% last year and 87% in 2008.

He holds shares worth up to £3.4m but is only allowed to sell them in 2014, should the bank's share price rise above 70p.

Mr Hester added that the bank was "on track" to meet its ambitious targets in terms of returning to private ownership. He had told the committee last year that he hoped to turn the bank around in three to five years.

Hester's commitment is that he won't pay more [on bonuses] than the market price. Now that may be easier said than done
Robert Peston, BBC business editor

On the government's asset protection scheme, which provides taxpayer guarantees against potential losses on bank assets, he said that it was unlikely that RBS would call upon it.

"The world looks a bit less gloomy today than it did in February when the asset protection scheme was conceived and also RBS's far-reaching restructuring has begun to pay off as well," he said.

Rock bonuses?

Northern Rock chief executive Gary Hoffman said that his bank may pay bonuses for 2009, after the nationalised bank did not pay any in 2008.

"We have agreed with the board and with shareholders that there would be some incentive scheme for 2009 and if we meet targets that will be paid out," Mr Hoffman told the committee.

Gary Hoffman, Northern Rock chief executive
Chief executive, Northern Rock, 49
Basic salary: £700,000
Joined Northern Rock in August 2008 from Barclays

But he stressed that the majority of the bank's 4,500 staff were employed in the North East, earned about £20,000 and were not City bankers.

He said there was also an incentive scheme for senior staff, but added that it was not clear yet at what levels that might pay out.

He added that there was a possibility that some people would receive bonuses of £25,000 - the level at which banks must pay a 50% tax.

While there has been much public outcry against large bonuses paid by banks, particularly those that have been bailed out by the government, Ben Barrat, head of financial services recruitment at Alexander Mann Solutions, says banks have to make themselves attractive as employers.

"Those [individuals] that have succeeded have proved themselves to be extremely valuable assets and, understandably, the banks are keen to do whatever it takes to keep hold of these people," he said.

"One bank refusing to pay bonuses would have to be prepared to wave good bye to some of their very best performers, who are not going to be short of lucrative offers from rival institutions."

'Thorough disclosure'

Lloyds chief executive Eric Daniels faced a barrage of questions on the bank's handling of its takeover of HBOS.

Lloyds has been widely criticised for its decision to buy HBOS last year.

Eric Daniels, Lloyds chief executive
Chief executive, Lloyds Banking Group, 58
Salary: £1.15m, no bonus (2008)
Entered banking in 1975 with Citibank, where he spent 25 years

Although Mr Daniels said at the time that the combined group would have "a strong financial position," it later emerged that HBOS had made a loss of £10.8bn in 2008.

"We believe this was good for, not only Lloyds shareholders and other stakeholders, but we also believe it was a good thing for the wider banking system," Mr Daniels said to the committee.

"If HBOS had gone down, it would have had much more serious consequences than the current crisis that we're experiencing."

The committee asked him whether he thought Lloyds should have disclosed to its shareholders the £25bn of short-term loans the government had made to HBOS at the time of its acquisition.

"I believe the disclosure was absolutely thorough," he repeatedly replied, so much so that one MP said he sounded as if he'd been briefed by a lawyer.

Mr Daniels also refused to rule out further job losses at Lloyds.

Unions fear 15,000 jobs will be lost at the bank but Mr Daniels said: "I cannot possibly comment."

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