[Closed] if you want to complain about RBS boss's £960,000 pay - here's his email!

But let's not fall for big bank, very complicated, tight executive market, high profit baloney. Making a lot of profit is not the issue, it's profitability ie, return on the capital employed (and in this case capital employed by the state) that matters.

A [i]slightly[/i] simplistic analysis, I think.

Agreed, it's about far more than today's profitability, but it's also about a great deal more than ROCE. What Hester's doing is remodelling the business; under Goodwin, RBS spent money on all sorts of non-bank stuff (planes, trains, hotels, pubs) and in the end, it had one of the biggest balance sheets in the world. However, it was making loans it will take [i]years[/i] to detoxify.

During the last three years, SH cut the balance by just over £600?billion. He's got Direct Line & Churchill up for sale ("oh yesssss"), flogged the aircraft leasing division to Sumitomo a few weeks back, and will sell more in the coming months. There's been a scything of staff numbers too.

Basically, he's stuck to the plan that Osborne set him - dismantle the risky bits, cut the costs, make it a traditional bank again. He's done that, on time, and broadly fetching the returns expected. He's a bloody good operator, he's meeting the bargain agreed with the Treasury, and he should be getting his bonus in return.

he will NOT be the person to lead RBS when it's a private bank again; at that time, sure, judge the CEO on ROCE. But Hester isn't really doing the standard banking CEO role; he's doing a messy and difficult clean-up job.

Edited to say: and still no-one's bothered that Hester is only the third-highest paid person at RBS. As ever, you've been duped by the politicians, all busy pointing their fingers at anyone but themselves.

It's all penis envy.

Yes he earns more than you.

Get over it.

The guy should be applauded for having a successful career in a top job. A culture where we all slag off people successfully running businesses is sick. I even thought Fred was a ok guy, he expanded the RBS business and made it one of the biggest banks, he did it in a commercial climate that was seen as acceptable when he did it, then he sadly over stretched with his global ambition and the world climate had changed.

any extra shares dilutes the returns to existing shareholders

I always understood that shares for incentive schemes had to be purchased by the company, they're not just "printed".

Whilst I'd agree that there's an issue with executive pay in this country I wouldn't have singled out Hester as a particular example although I can see why he makes a convenient scapegoat for the press. As Dimbleby pointed out on QT last night there are plenty of other highly paid public sector employees such as the DG of the BBC who should be under equal scrutiny (never mind Dimbleby himself)!

I don't think anyone has a problem with successful people earning more money, but its [i]how much more[/i] that is the problem.

ti pin man you seem confuse don many issues - i dont undersatnd whay question his pay deal equated to penis envy...i don thtink these words mean what you think
As for praising Fred I actually believe you mean no one would troll that blatantly in which case i say simply 😯
yes he was ok till he bankrupted the company and required the state to buy it...all in all only a slight misjudgement

Ernie. I don't want to labour the point or be rude but you are misunderstanding the difference between profits and profitability. But never mind lots of people do the same

Nick, I think we agree and of course I am simplifying things. Hester is doing a reasonable job at executing a pre-determined strategy to restructure and shrink the mess created the good Sir. I think we merely disagree with the availability and cost of talent required to implement the strategy. Nothing a retired military man couldn't sort out - implementing basic operational efficiencies.

You can be perfectly satisfied with your genitalia while debating this although I do accept that this is possibly valid in some cases. But Goodwin was running a smoke and mirrors campaign well before the crisis. There is a difference between building a global bank and a global house of cards

Nick, I think we agree and of course I am simplifying things. Hester is doing a reasonable job at executing a pre-determined strategy to restructure and shrink the mess created the good Sir. I think we merely disagree with the availability and cost of talent required to implement the strategy. Nothing a retired military man couldn't sort out - implementing basic operational efficiencies.

Agreed on most, but

(1) a retired military man wouldn't have a clue on sales negotiations. Military types are excellent on data dissemination and psychology, but often struggle with nasty, selfish, City types. Certainly my brother (ex military) and I have an entirely different approach to negotiations

(2) You can't ignore the rest of the banking market. You have to take into account what the other banks are paying, and attract accordingly, or you end up with some sort of privately rich amateur who doesn't really know what they're about in charge. We've already got one George Osborne, and really, that's more than enough.

TandemJeremy - Member

Stu_N - Member
=1 for FarmerJohn. There's a market for people who want to/ are able to run huge multinationals, and if you don't pay a market rate you won't get someone suitable to do the job.

Hester won't be at RBS for the money

am I the only one to see the illogical nature of this? We have to pay the market rate to attract these people but he is not in it for the money?

It's not illogical. He could certainly do better elsewhere but presumably wants the challenge he is getting at RBS to make it "safe" and turn it around into a package that can be refloated (both metaphorically and literally).

To take on that, he will have agreed to be paid a market rate, which in that market is a package that has a fixed element and a significant bonus element. The challenge of the job is presumably the motivator, but reward has to be right - and in line with what has been agreed at the outset. It's probably not the issue of pay per se that would make Hester leave, more the breakdown of trust in that he is not getting what he signed up for but has delivered what he has signed up to do.

Overpaid? Maybe. Isolated case? Definitely not.

This bitch (and I don't use the word lightly)
[url= http://www.telegraph.co.uk/news/politics/8709799/Council-boss-Andrea-Hill-cost-Suffolk-350000-to-leave.html ]Head of Suffolk County Council[/url]

....destroyed Suffolk County council, making large numbers of people redundant(from vital services), bullying her direct reports to the point where one hung himself and basically made a mockery of the system - £1500 on a photo shoot?!?

Fair enough, £218k isn't the £2m this blokes getting, but based on the fact that this is a public service first and foremost I find it far more frustrating than any privately owned but public funded service paying over the odds. What makes it worse is that the council still see the claims she made as justified.

There are plenty of other examples and having worked in Canary Wharf for the last 18 months for a large Government owned organisation, £2m a year is chicken feed. At least RBS are being transparent about the earnings. I'd like to know how many people benefited from the sale of Northern Rock to Virgin money and by how much. I bet it makes this look like a drop in the ocean. Obviously completely justified having being such a successful company....

If you're good enough to warrant the massive salary, then why shouldn't you be paid it. If you're a lying, manipulative disgrace for a human being (I'm looking at you Andrea), hanging isn't good enough....

Horatio so I wonder how much money you'd do the job for? To be responsible for all that? And remember similar jobs your peers are in are getting similar salaries. Ah of course, you'd do it for the love. If you'd do it for less your kidding yourself.

Junkyard people are quick to slag this guy off cos of the size of his pay. They compare their effort and think how can this man get THAT much more than me. Surely he isn't worth more than me? Sadly the world doesn't value our jobs/effort as much as his. C'est la vie. I'd love to earn 1.2 mill a year, wouldn't we all but life hasn't put me / us in that position.

Some people earn more than other people. Shock horror.

Others think they have the authority to regulate what this should be by diktat, empowered by nothing more than their own presumption.

Meanwhile: "IT is hard to understand what the coalition is playing at. Britain’s economy is stagnating, GDP appears to have shrunk in the last three months of 2011 and yet the government exudes no sense of emergency, no impression that it realises that we are in a national crisis and that radical, drastic and unpopular action must be taken. The mood music remains deeply imbalanced and dangerously anti-capitalist and hence anti-growth; rhetoric matters as it helps set the zeitgeist. What is needed now more than anything else is to kick-start the corporate sector to encourage it to hire and invest in the UK, rather than accumulate cash and invest abroad; instead, we get incessant calls for wealth taxes, more green taxes, more restrictions and red tape, all of which will merely convince businesses and entrepreneurs to sit on their hands. The 52p tax rate, seen internationally as a reason to avoid the UK, will stay indefinitely.

It is of course right to tackle problems (such as rewards for failure) but wrong only to focus on these kinds of matters or to constantly seek to outflank the Labour party from the left. How many more navel-grazing, pseudo-philosophical and pointless speeches about the nature of capitalism must we be subjected to? It’s madness: people need jobs and growth, and these will only come from profit-making private companies. Yet listening to the rhetoric, the only kinds of business people the coalition like are young, small wannabe entrepreneurs (who are indeed great) – but all other (also very valuable) categories are constantly criticised, told they are all abusing the system or lectured that their true market worth is far below that of a footballer. There are of course plenty of abuses and problems, some of which are reported in today’s City A.M. – but listening to the coalition and our political class, abuse is all that there is. That is utter tripe.

The endless banker-bashing persists, even though the coalition desperately needs a reformed City to start growing, hiring and exporting its services again. The government should be pursuing a pro-market, anti-handout, pro-competition and anti-corporatist policy – but doing that doesn’t mean reinforcing anti-business prejudices or waging war on the very people who need to be convinced to start investing and hiring again. It’s a question of balance, of emphasis.

It’s also about real, tangible action, rather than gimmicks, announced, re-announced and re-re-announced. There have been no substantial, epoch-defining changes to the regulations and red tape that cripple the labour market. Speeches on getting rid of health and safety excesses turn out to be about trivial tweaks. The Beecroft labour reforms have been diluted out of all recognition. Continuously hitting the City while saddling manufacturing with expensive energy policies and slapping an ill-thought out tax on North Sea oil and gas companies that has led to a drop in production is stupid. No wonder it sometimes seems as if the UK is being rebalanced – from growth to stagnation.

The Prime Minister’s speech to the Council of Europe yesterday calling for reform of the European Court of Human Rights was eloquent; it was also pointless. Reform won’t happen.

The coalition thinks it is prioritising growth. It isn’t – not even remotely. The spending squeeze is right and necessary, and must remain intact. Apart from that, the coalition needs to tear up its policies and start again."

No i would not like to earn 1.2 million. I would like to end poverty or stop people dying from malaria or something a little bit more noble and somewhat less self serving

MD of a small company, profits of say 500k, salary expectations? 80k a year and a bonus of maybe 20k? Don't think anyone would argue with that.

Large company say 150,000 employees, profit of 2bn, by scale you would be looking at what - salary of 3.2 million with a bonus of 800k?

To be responsible for all that?

And if it all goes tits up, massive pay off and stroll into another directorship. Seen it so many times.

What would be the right answer to this question?

- loads, so he's obviously making efficiencies and deserves the money
- loads, so it's ridiculous that some people should lose their jobs while he gets paid more for his?

- none, so he's obviously not serious about reducing costs and doesn't deserve the money?
- none, so he's obviously doing his best to save money in other ways and deserves the money?

I'd go for the second one as the answer to the status quo. Although his predecessor would argue the first one and we can all see what a great job he did.

I would like to end poverty or stop people dying from malaria or something a little bit more noble and somewhat less self serving

What's stopping you? Is that your current job?

You can't ignore the market exactly - a market with a current excess supply of "talent" not a shortage and a bank that is being shrunk massively back to a basic banking core. Hence, I appreciate that Hester is doing a reasonable job but still feel that the major shareholder representing our interests could have played a stronger hand with him and far more obviously with some of his colleagues who cant even take the credit for the success of GTS and UK retail. If the deferred payment is conditional on future performance and if this is enforced then it becomes less of an issue.

However, fin serv's remuneration is on a structural and cyclical decline especially as low-leveraged profits will force a different level and type of future remuneration. Thats the market rate that we should be focused on, not the historic ones.

CMD normally plays a good hand of cards, but still think he miscounted his trumps this time.

The real issue is not the levels of pay at the top but rather the disparity of paying seven figure sums while paying minimum wage to others in the same company. It's this that really can't be justified.

Hester won't be at RBS for the money....

...am I the only one to see the illogical nature of this?

Its not illogical. Id see his relatively short tenure at RBS (3-5 yrs tops?) as an extended job application. He can have the pick of any of the global financial CEO roles that come up in the coming years.

Junkyard indeed as all famous beauty queens say on stage, world peace please and no thanks I don't want the winners cheque 😉

a retired military man wouldn't have a clue on sales negotiations. Military types are excellent on data dissemination and psychology, but often struggle with nasty, selfish, City types.

Rio - correct, schoolboy error on my part re the shares!

The real issue is not the levels of pay at the top but rather the disparity of paying seven figure sums while paying minimum wage to others in the same company. It's this that really can't be justified.

+1

Not just on a moral basis either. Its the people at the bottom that spend the most as a proportion of the income, if they've nothing to spend the economy doesn't work.
http://www.businessweek.com/magazine/how-inequality-hurts-the-economy-11162011.html

Its got to be a level playing field though, no point in blaming individuals or companies for maximising their income and seeking to pay as little tax as legally possible. Only the government can resolve this, especially with banks. Its not like we can vote with our feet and stop using them.

Junkyard indeed as all famous beauty queens say on stage, world peace please and no thanks I don't want the winners cheque

Richard Lambert makes interesting points on exec pay in today's FT:

http://www.ft.com/cms/s/0/634181be-4769-11e1-b847-00144feabdc0.html#axzz1kaRtDlGv

Its a disgrace that he gets 2 million a year - there simply is no possible justification for that at all.

teh answer to super high wages - super high taxes.

this is taxpayers money he is taking

He'll be paying 50% tax on at least £1,850,000 of that 🙄

aye good article that well worth a read

He's paid over a million quid and you think it's him that reads his emails? You're just making some poor PA's life a little bit harder.

randomjeremy - Member

He'll be paying 50% tax on at least £1,850,000 of that

Bonuses in shares are not taxed as income IIRC - its a tax dodge

Plenty of greedy pigs on this earth ...

Does anyone have a list of his objectives for the year?

In my job if the business does well and I do well - with strictly defined objectives - there is a bonus pot which I *may* get a bit of. If the targets are not met I don't get a bonus.

It seems that in big business you get a bonus regardless of what you do. I don't recall any time where a business did badly that the upper management didn't get a bonus (but of course all the shop-floor staff were stuffed...)

Bonuses in shares are not taxed as income IIRC - its a tax dodge

Unfortunately that's not what HMRC thinks, they seem to think it's taxable just like any other income.

Ernie. I don't want to labour the point or be rude but you are misunderstanding the difference between profits and profitability. But never mind lots of people do the same

Thanks for your polite comment, but I understand better than you think, or at least you claim to think. I also understand how easy it is for banks to make profits - throughout recent recessions (80s, 90s) banks have continued to make profits. Whenever a bank fails it is invariably due to systematic incompetence, as was the case in 2008 and which led to such catastrophic consequences globally, no one disputes that - whatever their political persuasion.

Anyone think now might be a good time to but shares in RBS?

Anyone think now might be a good time to but shares in RBS?

Now might be a good time to buy shares in several of the banks.

Some of their share prices are so low there's only really one way to go in the long run. Although it's certainly a long-term investment.

Ok - ernie, happy to explain properly if you like 😉 But you still mistake "making profits" ie crudely revenues > costs and being particularly "profitable". See if you can find any nice city bloke and get him/her to explain why banks trade at a discount (consistently over time) to non-banks. If you are lucky they will explain underlying profitability (low) and leverage (high).

Then you can ask them to explain why regulators want lower leverage and finally they might explain why that means bank bashing will mean that banks are unlikely to make enough profits to grow themselves out of the recession and therefore allow QE to work.

Hopefully they will make it easy enough to understand 😉

Oh and then you can bash GO and the BoE for an overly narrow and incorrect policy mix.

Double Oh, then you really can be angry that shareholders were banboozled by bank management and allowed them to be paid on the basis of leverage rather than profits. Try Deutsche Bank as a good example.

Its a binomial call based on what happens to Greece, Portugal and Italy. If they default, you can still lose a lot of money. If they struggle through, banks could double or triple in value - even with low profitability :wink:. So place your bets!!

I think you mean binary and while I am posting I should say your understanding of what banking involves and how they are run could be written on the back of a postage stamp with room for the Lord's Prayer. ROCE? Completely the wrong measure and what you probably meant hasn't been used for over twenty years.

Thanks mefty - binary is correct. Know jack sh!t about banking obviously, but excuse for me talking about profitability and leverage. Regulators don't seem to understand it either (BTW by capital employed I was referring to equity so RoE nor ROCE.)

So please help me out - how is profitability measured, what is this leverage thing that everyone talks about and why have banks always traded at about a 20% discount to markets pretty consistently for the past 50 years? I would genuinely like to know. And is it really true that banks are really profitable?

how is profitability measured

Don't have time for most of this but this one is easy - the way that gets you paid the most.

C'mon mefty help me out. Just one answer then - how do you measure profitability in a bank, or at last what have people used in the last 20 years?

Didn't those nice and clever men at Barings Bank pay that fellow Leeson a lot of money - was that because he was very profitable or was that over 20 years ago as well?

So RBS makes £4.8bn (04), £5.4bn (05), £6.2bn (06), £7.3bn (07), -£24.1bn (08), -£3.1bn (09), -£1.1bn (10) and expected (apparently, but how do they know?) to make apprx -£765m (11), £1.8bn (12) and £3.2bn (13).

So leaving aside from the 08-11 bit, does that mean they did a good job?

Hopefully they will make it easy enough to understand

Don't be a herbert teamhurtmore, I'm unimpressed by patronising and condescending attitudes, specially when the sense of superiority comes from a disciple of a flawed economic model who continues to remain in denial.

Truly ernie - that line came out wrong. It wasn't meant to be as rude as it sounds, apologies! The smiley was meant to indicate that I wasn't being clear (self pi$$ take) but it doesn't come across like that on re-reading.

But what is my economic model out of interest and what am I denying?

I've heard you argue on here that there's nothing wrong with unregulated free-market capitalism, it's just the capitalists who were wrong. If ever there was an example of someone trying to bullshit themselves out of a corner it's that.

The starting point is normally a combination between a RAROC and EVA but these are often too blunt for many businesses which use uncharged attributes of the organisation or take risk which cannot be valued properly as data is not available to evaluate - sometimes there is insufficient data, but the model is still trusted, this together with the underpricing of liquidity risk in many ways lead to the credit crunch. So as a manager you have to weigh this all up with what the impact is going to be on your career, whether you can pass the buck, and other strategic decisions, and then you stick your finger in the air.

Are banks profitable - no one knows - how do you value long term derivative books where there is no depth to the market? How do you value anything if there is no market? RBS's gross balance sheet (which will have been tidied up) was 1,623,383 million at the end of 2010, a 1% swing in that is £16 billion - i.e one year's profit in a very good year. Merrill Lynch lost in the credit crunch more than they made in their whole 90 years history. Are Bank's profitable, I will tell you in 100 years.