Page last updated at 14:22 GMT, Wednesday, 28 April 2010 15:22 UK

RBS chairman makes bonus pay pledge

A protester outside the RBS AGM in Edinburgh
Campaigners are objecting to RBS lending billions of pounds to oil firms

The chairman of part-nationalised Royal Bank of Scotland has vowed to listen to investor concerns over its new bonus scheme for top bosses.

A quarter of performance-linked rewards are triggered when RBS's share price hits 50p, but that target has already been met.

This has angered some investors who have seen shares slump and dividends scrapped since the bank was bailed out.

Sir Philip Hampton's pledge came as groups protested at the bank's AGM.

Human rights, anti-poverty and environmental groups joined forces outside the meeting in Edinburgh, objecting to RBS's funding of oil companies which want to extract oil from the Canadian tar sands.

They also want a greater say in the bank, which is 83% owned by taxpayers.

Inside the meeting, shareholders called for assurances that performance rewards would be toughened up.

The pay-out - which could net chief executive Stephen Hester a maximum £4.8m - is linked to the RBS share price, which has risen strongly in recent weeks.

I would say that we need to have our eyes wide open about the reality of credit demand as we pull out of the recession

Sir Philip Hampton

The bank's shares closed last Friday at 55.75p.

Sir Philip told shareholders that when the new scheme was finalised, "the share price was sitting at a much lower level than it is today".

"The remuneration committee is very conscious of the views expressed by some shareholders on the appropriateness of this target, given the recent strength in the share price, and I can confirm that the committee will take these views into account before finalising the target," he said.

Despite Sir Philip's pledge to review targets under the three-year scheme, PIRC - an organisation which advises institutional investors - said there were "still issues" with pay practices at the bank.

"The proposed long-term incentive plan is considered to have an excessive maximum pay-out of 400% and there is committee discretion to raise this level in 'exceptional circumstance'," PIRC said.

Talented staff

UK Financial Investments, which represents the taxpayer's stake in the banks, supported the new bonus scheme, although it said all measures "must be appropriately stretching".

"We welcome the remuneration committee's assurances that the vesting schedule for the absolute share price measure will take appropriate account of the movement in share price since the beginning of the year," it added.

Sir Philip said he understood public concern over pay but added that it was "essential" that talented staff did not feel disadvantaged by working for RBS.

RBS has gone further than other banks on G20 pay practices such as deferral and clawback of bonuses and he said it had struck an "appropriate balance" over pay.

The bank does not reveal its first-quarter performance until 7 May, when it is also expected to say more about bonuses, but shares have risen on recent upbeat broker comments on prospects for a recovery.

'Eyes wide open'

RBS and other banks have also come under attack from politicians in the general election campaign for not lending enough, although the bank said it was making new loans to more than 5,000 small businesses every week.

The chairman said many firms were looking to reduce borrowing in the downturn, adding: "I would say that we need to have our eyes wide open about the reality of credit demand as we pull out of the recession.

"The political imperative of stretching targets is understood but, although we will make the money available, we cannot invent credit demand."

Although the economic outlook has improved upon a year ago, the chairman added that "we are under no illusions that we are out of the woods".

But Sir Philip added that the recent improvement in RBS's performance gave him confidence that the firm would go "a long way down the road towards leaving the 'problem bank' label behind" during the next year.

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