RBS Board Adopting SNP Tactics

The SNP tactic leading into budgets and was (until it actually happened) the same about votes of confidence in their ministers to resign en masse and cause a new election they thought. Well it appears that the Royal Bank of Scotland board are to take the same approach over their bonuses.

The bank is looking to pay £1.5bn* in bonuses to its investment arm up from £900m last year. The board says it needs to pay this money to keep its top personnel with them and to keep them incentivised. Saying they need to act in the interests of all shareholders, not just the major one, a bit much after how those same shareholders were treated in recent years. Personally many of the rest of us have taking lower pay rises, reductions, loss of overtime payments, loss of bonuses with the only incentive to keep a job during the financial crisis. However, the issue does raise the issue of what type of bank the RBS is.

The Government bailed out the bank not to protect the investment arm but to protect the banking interests of the ordinary clients of the banks and their savings and banking facilities. These had been put at risk by that investment arm and its casino banking practices. Lib Dem Treasury Spokesman Vince Cable has been one of the most vocal proponents for breaking up the banking sector so that the high street banking sector that is all that most of us every have direct concerns about is separate from the speculative nature of the investment banks.

I recall when I first started studying economics the two were discussed totally separately, but soon after banking regulation was relaxed to allow both aspects to be carried out by the same company. However, maybe it is time for the Government to go back to those earlier principle to shore up confidence in our high street banks, after all you don't find an insurance company operating in the same premises as a bookmaker.

However, the issue with the bonuses is that the banks and the bankers were bailed out at tax payers expense and the government is going to look to get the taxpayers money back at some point. To spend £1.5bn of it on bonuses to staff, especially when many of those who bank with them are still struggling to make ends meet is lording it over everyone. Indeed if any other company director in any other line of business were to get a bail out from someone taking over 70% of the business in an interim agreement the profit would generally go to paying back that investor, even their own share of the profits to get out of the control quicker.

*This equates to 25% of the £6bn profit made by the investment arm of the bank this year.

Loaning to Get Around Bonuses

The Royal Bank of Scotland is offering loans, against the deferred bonuses, to hard up lower paid staff who will not be receiving their expected bonus of hundreds or thousands of pounds just now. This is not extended to the investment bankers who were expecting their seven figure bonuses. No doubt these will be at the bankers special repayment rate or even better than normal, that detail is missing.

However, will the bank look kindly on customers who have had their salary frozen, not receiving their increase of hundreds or thousands of pounds? Will they go easier on issuing loans or overdrafts to help them out?

The answer is probably not. How else are they going to pay to look after their own. The RBS staff will be getting their salary increase and easily secure a loan to cover their bonuses. Many others will find it hard to secure a loan, and even if they do not at the same rate and face uncertainty when or even if they will get their salary increased.

While the lower paid staff are not fat cats, they certainly are more content cats than many of the general population.

Bank Bonuses Curtailed

The Royal Bank of Scotland are the first of the banks supported by public money to have their bonuses hemmed in. Following public outcry that the bank that was bailed out with public money was still paying out bonuses of astronomic proportions when making such a heavy loss it issued its new plan after discussions with UK Financial Investments (who oversee the Government's shareholding in banks). The new deal is (from the bank's full statement):

• No Reward for Failure: No bonuses or pay increases will be made to staff associated with the major losses suffered in 2008.
• Board Remuneration: As previously announced Board Executive Directors will receive no bonus for 2008 performance and no pay increase in 2009.
• Pay 2009: Agreement has been reached with Unite in the UK for staff which they represent below managerial grades. Ongoing discussions with staff representatives are taking place in other regions. This will mean a pay freeze for Directors and Executives in the Group worldwide, and for most staff in the US and the Global Banking & Markets division. On average, other staff will receive below inflation pay rises.
• Bonuses for 2008: No discretionary cash bonuses will be paid in 2009 for performance in 2008. Only legally binding guaranteed bonuses will be paid. Total cash bonus payments for 2009 will amount to £175 million. Therefore total cash spend overall will have been reduced by more than 90 per cent.
• Protection for lower paid staff: The existing Profit Share "bonus" scheme worth 10% of salary will not be paid for 2008, and will be terminated for all future years. An equivalent payment will be made as part of the existing monthly award package to staff below managerial grade, beginning in 2009. The average salary for this group is £18,979.
• Deferred awards: Staff who are essential to the bank's recovery and who might otherwise be at serious risk of leaving, and who remain with the Bank will receive a deferred award for 2008. The deferred award will be released in three equal annual instalments beginning June 2010 and payable in sub-ordinated debt of RBS i.e. not in
• Claw back of deferred awards: In individual cases up to 100 per cent of these deferred awards will be subject to forfeiture at the discretion of the Remuneration Committee and if future losses arise in relation to their 2008 activities . Awards will therefore be based on sustained long-term performance, not on short-term revenue generation.
• Deferred Amount: The total amount of deferred awards will be finalised following our forthcoming company announcement relating to the Group's Strategic Review. However, the total amount will represent a very significant reduction on the comparable prior year totals and the settlement overall will be as tough as that at any other comparable bank.
• Future Policy: RBS is undertaking a fundamental review of its approach to future remuneration to ensure that incentives are well aligned to the interests of shareholders over the long-term. The intention for 2009 is to follow the same approach and deferral periods as outlined for 2008 while ensuring the Group pays competitively overall with other international banks. More details will be provided in the Group's forthcoming Annual Report and Accounts.

The net effect is that there is a 90% reduction in the bonuses that were to have been paid out for now. To counter the argument that key staff needed to get the bank back on its feet will be deferred (but they'd better see a turnaround or the claw back option will take effect). The counter staff, who obviously were not involved in the decision making will get their bonus as a performance related salary increase.

With the short term bonus culture employees have looked possibly to their own pockets rather than the health of the bank when making crucial decisions. So the move is to reward for longer term objectives rather than short term profiteering. Lloys who are seeking Government money have also submitted their bonus plans to UKFI for scrutiny.

Although with millions of others facing a salary freeze employees at RBS, who will be receiving below inflation pay increases, are still luckier than many other employees, and many of the unemployed, in the UK this morning after the year the bank has had.

RBS to Overhaul Pay Structure

The have received a mauling in the press and blogosphere about the amount being paid in bonuses following their Government bail out. But yesterday Royal Bank of Scotland boss Stephen Hester has announced there will be an overhaul of the bank's pay structure.

Amongst the admissions yesterday to the Treasury select committee was that pay in some areas of the business were too high. But is this too little too late in reaction to the public outcry that while others in other lines of work are struggling, the bank had announced the go ahead to £1bn in bonus payments in a year when billions were lost. However he did say that the bonuses would be being paid saying "if [he] thought it was a responsible move, [he] would not pay a penny". He said that many of the employees did exactly what was expected of them and deserved their bonuses.

However, without the back up from the Government the bank would have failed many of those employees and they wouldn't even have had jobs let alone the ability to pick up a bonus. Surely that is the crux of the matter. These bonuses are not being paid out of the bank's profits from last year, as there were none just a whopping £28bn loss, but from the public purse as we bailed them out.

During the grilling before MPs he admitted that it could take as long as five years for the bank to merely reverse the serious failing of the last annus horribilous. Whilst Hester admitted that the risk-management systems side of the business needed a major overhaul, it was their spin at the roulette wheel that overstretched the bank, he somehow still fails to see that the public cannot understand. Nor will they accept that when a business has failed so dramatically that they should have the ability to hand out bonuses of the scale that some have been mentioned. Merely claiming that no bonus of any sort would be given to people associated with the vast losses the bank had made is not enough the others have to be reviewed too in light of the current financial state of the institution.

Prezza's Petition

He may one have been technically inept but you've got to hand it to him John Prescott truly is harnessing the internet. He has even established an e-Petition demanding that the Royal Bank of Scotland do not pay out the £1bn in bonuses that are heading the way of many of their staff. Some apparently are even 6 figure sums. There's also a Facebook Group (which John failed to link to) No Ifs, No Buts - Pass on the Cut demanding the same things.

When there are people out that who have recently lost their jobs, are scared they may be next. Others whose salaries raises are under review, or have been suspended or are on short weeks or partial paid leave of absences it is an obscenity. Banking fat cats aren't prepared to pass on the full interest rates cuts. Are making it harder for the average person to borrow money and are still paying themselves top dollar bonuses when they have been bailed out with Government money.

To pay out 12.5% of the money that the Government had given the RBS as bonused shows us just how sorry they are.

Not one bit.

First the Apology Then the Fallout

Earlier today Sir Tom McKillop, former chairman of the Royal Bank of Scotland was amongst those apologising to the Treasury Select Committee at Westminster. This afternoon news came from Alan Dickinson, chief executive of RBS UK that the company plans to shed 2,300 jobs. He said:

"We recognise that any news of this nature is unwelcome at any time. It is essential, however, that we consistently review our business to ensure that we are able to operate as efficiently as possible, especially in the current economic circumstances.

"We will be consulting with our recognised trade union, Unite, and our employees throughout. We fully agree with Unite that we must keep compulsory redundancies to a minimum and we will."

I trust that as a result of this review the bonuses that they are giving out. Of the £20bn that the Government has used to bail out the back £1bn is earmarked to pay RBS employees bonuses. How much of this could be used to retain some of those 2,300 employees is a question that should be being asked by the Prime Minister as well as asking for those bonuses back.

Earlier today fellow Lib Dem blogger Charlotte Gore, who I normally consider far more economically liberal than me, claimed the Government should lay off the banks and their bonuses. There is one difference now to in the past when Charlotte worked from them. In the case of RBS the Government owns 68% of the bank and has every right to see that investment spent wisely. Why should the banks be a special case when other employees across the country are facing the possibility of a freeze on pay, not even getting their salary reviewed or may have to make further savings as their employers are feeling the pinch. If the market doesn't allow for it surely bonuses shouldn't be being paid?

When I was a Civil Servant my bonus was performance related and not a foregone conclusion, if I added value to the branch that I worked in I would be rewarded if I didn't then I wouldn't. This was a salary increase bonus not a one off payment. This year being in the public sector in an industry that is directly affected by the well being of other firms I wait with baited breathe. So maybe the banks should look at rewarding performance, but also be prudent about doing so, especially when many of their own customers are uncertain about their own financial futures.