January 30th, 2012
06:17 PM GMT
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London (CNN) – After days of public outrage, Royal Bank of Scotland CEO Stephen Hester has agreed to waive his near £1 million ($1.5 million) bonus.

Fellow bankers say we should applaud his magnanimity. They point out that Hester isn’t the villain who drove the company to the brink; on the contrary he’s the hero, who took on the challenge of trying to save it. Besides, they say, he is paid far less than his peers.

Meanwhile, the average earner is incensed that a largely taxpayer-owned entity could even contemplate such a generous sum - one which comes on top of Hester’s already £1.2 million salary.

I am no apologist for bankers. However, I do believe that the storm surrounding RBS has less to do with bankers’ bumper pay and more to do with political point scoring.

In any case, the furore surrounding Hester’s remuneration is heartfelt. This is because it affords the public a chance to re-evaluate their views of both the financial services industry as well as the people who work within it.

Words like "bankers" and "bonuses" are difficult territory for even the smoothest-talking UK lawmaker these days. Their utterance is carefully limited to only a few well-briefed members of government who are up for the fight.

Across the rest of London, finance is starting to lose its image as the fashionable career choice for most young graduates. Why? Because they feel like the big pay packets of the past are… well… consigned to the past.

On the other side of the equation, those applying for a home loan find themselves frozen out by banks too nervous to lend. Interest on savings is paltry thanks to a base rate stuck at historical lows.

So, why is Hester’s pay grade so contentious and how does it stack up against his peers?

It’s certainly less than the multimillion dollar packages granted to Wall Street’s biggest bankers and sure to be smaller than Barclays’ resident big earner Bob Diamond.

However those institutions have not been financially saved by the man-on-the-street. A fairer comparison could probably be made with Antonio Horta-Osorio, CEO of Lloyds Banking Group, who earlier this month said he wouldn’t take his bonus, one which could have been as high as £2.39 million.

But haven’t we lost sight of what a "bonus" is actually for?

The hint is in the name: The word derives from the Latin for "good." As such, it’s an extra payment for a job well done.

Such amounts - though routinely expected in high-flying finance - are discretionary. And let’s not forget: In many jobs, out there in the "real economy" the awarding of bonuses (and big ones at that) is not standard practice.

Here’s another catch: A bonus should be paid if a company has surplus cash to do so. Yet stories abound about banks dishing out performance payments to staff even if they are in the red.

In fairness, Hester has returned RBS to profit, shrunk its balance sheet and met a number of his targets. On the other hand, his actions will result in thousands of redundancies. Those who survive the cull will share a pool of some £500 million.

But couldn’t the capital be better deployed?

What’s more, at a time of rising income inequality and promises of responsible capitalism, would pocketing £1 million not seem a little insensitive?

The uproar surrounding the RBS chief’s bonus highlights how, four years after coming to its rescue, the British public remains raw about having to bail out RBS.

They have a stake, so they want a say in how it’s run.

Unfortunately for Hester and Britain’s other bankers, the astonishing failures of their predecessors dispelled the golden-child banker myth back in 2007-2008. Bankers are no the longer the untouchable figures they once were.

It is somewhat ironic that before rocking up at RBS Hester wasn’t working as a banker. He was running the real estate company British Land.

So, I ask you, is it the size of Hester’s total compensation that irks? Or the fact that it was earmarked for a banker?



soundoff (18 Responses)
  1. arthur uzo

    Wanted criminals or convicted criminals.

    January 30, 2012 at 7:22 pm |
  2. Benny

    i studied the last 5 years just to become one of these guys. don't mess up my future society

    January 30, 2012 at 9:33 pm |
  3. John

    It is actually incorrect to say that bonuses should be paid only if a company is making profits. People outside of finance equate "bonus" to an extra amount of money received on top of their pay. In reality, many banks give their bankers a smaller base salary and make the majority of their compensation their bonus. Since a bonus is entirely discretionary and is based on results, it provides incentives to work harder and deliver better results. Hence it makes a CEO work harder to hit all of their targets (as compared to a CEO who has most of their salary in base pay, and isn't willing to go the extra mile to hit targets because the extra work won't result in extra income).

    Also, with regards to "insensitive." If you are an ibanker working 100 hour weeks, frequent pull all-nighters, work on weekends and have little vacation time, AND you actually hit your targets, I don't think sensitivity enters the equation. No one works those hours if they aren't paid. It sounds good in an article, it doesn't hold up in the real world.

    January 30, 2012 at 11:07 pm |
  4. PJB

    Interest......on what? The ability to type in a number on a computer screen? So, we pay them for the priviledge of our endebtedness? REALLY? Our own fault for not insisting that our productivity and efficiency be valued properly and not endentured.

    January 31, 2012 at 12:19 am |
  5. truthhurtsss

    "In fairness, Hester has returned RBS to profit", Ms Nina dos Santos wrote.
    Ms Nina, I don't think you understand how these modern-day banksters make their money. Let me help you a little here.

    Borrow free or almost free money of 1% from the Central Banks, turn around and lay the money off lending it to Sovereign Countries(by buying their sovereign debts) at 5%, 8%, 20% or whatever high rates with no risk(what with the ECB iand U.s Fed Reserve indirectly backstopping them!) at all. With obscene spreads(the difference between the lent rate and the borrowed rate)like these, how can there be no "performance". Leverage up the borrowings from the Central banks and arbitrage the obscene spread with tens or hundreds of billions of dollars, Euros or pounds and soon any perceived performance WILL be impressive.

    Put a monkey on the wheel and even it can show the same or maybe even better performance. These banksters have no shame. They think everyone out on Main Street are ignorant fools(think "We are doing god's work" – Lloyd Blankfein) and they try to pull wools over Main Street's eyes with all these fanciful justifications. Some of these banksters need to be in jail but unfortunately with the con-current bunch of self-serving political office-bearers(in every of the industrialised countries) at the helm, this is has not happened at all. Instead these banksters are rewarded and implicitly told "they need not and must not go down with the ship they have sunk".

    January 31, 2012 at 1:48 am |
  6. Zsolt

    Neither villains nor heroes.
    They are the opportunistic winners of the system we created.
    When humanity moved beyond resource and necessity based consumption and moreover when we were seduced to spend way beyond our means in order to help the top layer of society to gain more profits, banks have become more and more important facilitators of the game until at the end money itself has become the object of desire completely disconnecting from goods, products, resources and so on.
    Today the financial market has little connection to the real world, we are living in bubbles within bubbles and people on top are only interested in generating zeros on bank accounts, playing like gamblers in casinos.
    The bankers of today are not criminals they are people who work hard to get where they are, they usually work hard in their jobs, they just get out as much as they can from the system that created them.
    Vilifying them will not help or make any difference.
    It is the system we need to change but this is of course much more difficult than to offer the occasional banker to the public as sacrifice.
    Fortunately for the public, unfortunately for the bankers the present system is going to collapse anyway as the deepening crisis will undermine this unsustainable infinite growth/infinite economical model.
    Whether we like it or not we will have to return to resource and necessity based economy in order to secure a sustainable and predictable future for all of us, and in such a system the role of banks will significantly diminished compared to their role today.

    January 31, 2012 at 2:36 am |
  7. truthhurtsss

    This just came hot from the press at ft.com and I swear I did not make this up:

    "Banks set to double crisis loans from ECB
    By Patrick Jenkins and David Oakley in London and Ralph Atkins in Frankfurt
    European banks are preparing to tap the European Central Bank’s emergency funding scheme for up to twice as much as the ECB supplied in its debut €489bn auction last month, providing further evidence of the sector’s liquidity squeeze."

    And no, it is not a liquidity squeeze! There is already too much liquidity sloshing around. The banksters are trying to pull wools over the layman's eyes with yet another of their dishonest justification. They need to leverage up their borrowings so that they can "make" more "profits", and make it faster, in order to try to get out of their insolvent state. Nearly every one of the major banks out(globally) there are technically insolvent.

    January 31, 2012 at 2:42 am |
  8. truthhurtsss

    @ Zsolt. "The bankers of today are not criminals." You can't be more wrong on that!!! Think Corzine, think Lloyd Blankfein for helping Greece to cook their books, for front-running their clients, for bundling all those crappy MBS and selling them as AAA-rated to unsuspecting and innocent laymen, and for many, many other deviant deeds.

    And there are many. many other similar characters out there......

    January 31, 2012 at 2:52 am |
  9. vin

    profits and losses ,,,,actually where on the stock markets as figures ,,,,any guess how much these guys spend on partying in the name of Buss Dev...1000 pound drinks person and stay and accomdation diff.....THE BASIC PRINCIPLE THAT THESE BANKS HAVE LOST IS THAT THEY ARE FOR THE MASSES......for higher turnover and profits all the banks are concentrating on HNI s ....common man would not get a 500 pound loan or incentive to keep his earnings or salary ...hence NO SAVINGS by ordinary citizens. If you loan 10 million pounds to small individuals and the percentege of bad acounts is 20% even then you are ok ,,,,but if one big deal of HNI goes boom ....you lose that much in one go.....I know this sounds crude and old ,,,,,,but this is the basis of bank ,,,,now they are turning into gambling dens of rich........maybe i am wrong but this is working in many banks who are looking to work for for HNI

    January 31, 2012 at 3:57 am |
  10. Alex

    Not all bankers are criminals sure there are some like madoff but you have to specify what bankers you mean private bankers have got nothing to do with the financial crisis
    bonuses are for the bankers that actually manage something and not all of them earn half a million a year
    people criticize bankers but think about it, there are the bankers you see in the newspapers, the criminals, and the ones you never heard of, the clean guys

    January 31, 2012 at 4:15 am |
  11. jeff

    @truthhurtsss

    There are no sellers if there are no buyers. MBS were sold to people who had teams of analysts. They did not do the work, they should fail. They just found a bigger fool.

    January 31, 2012 at 4:26 am |
  12. truthhurtsss

    @ Alex. Yes you are absolutely right that there are clean guys and good guys working in banks. These are the bankers and unfortunately they do not share in the glory nor the obscene profits. But the other banksters, the criminal ones, which usually include most of the head honchos btw, are the ones that are the glory seekers and the ones that are being paid obscene money that they are not fit to receive. Money that was not through their ingenuity, their righteous and honest efforts(notice I did not say hardwork because they may work hard all right, but crookedly!) but money made courteousy of the taxpayers facilitated by the Central Banksters. Do not miss the issue or the point here that the ones being scrutinised are the villains and not the honest and clean blokes.

    January 31, 2012 at 4:28 am |
  13. Alex

    @ truthhurtsss i wasnt refering to the article but to the comments it just annoys me that people can blame everything on the bankers. you know 2008 the loan system broke who was taking out the loans with no where near the amount of money you need for a loan
    e.g. take switzerland you need to be able to pay one third of the houses price but england you need 1% sure the amounts are the bankers fault but on the other side the people have to have some amount of common sense you cant buy a house with 2000 pounds in your account!

    January 31, 2012 at 5:00 am |
  14. truthhurtsss

    @ jeff. So if I sweetalk an underage girl or boy to have a relationship with me, then they are a willing party and a bigger fool?? What warpped logic is that?

    Sure the buyers deserve to take their losses in most cases, but that does not absolve Blanfein and his men from their criminal act. You are missing the point badly.....

    January 31, 2012 at 5:09 am |
  15. MiamiC

    There is no doubt that a person is a villain when he/she is willing to appropriate the product of the goods and services produced by others, because the system his peers created allows it. We've seen too many people in the factories and fields, in small and medium businesses, in offices and hospitals work hard and well with modest monetary reward, to know that our system distributes wealth badly. The banker and his peers, who wouldn't exist were it not for the product of the rest of the economy, are indeed villains when they use the fine print to dip freely into our pot.

    January 31, 2012 at 10:05 am |
  16. TheyareCrooks

    @truthhustsss I totally whole heartly agree with you. Its time that we all wake up.

    January 31, 2012 at 11:53 am |
  17. jakson

    Beware of entry impaired Algulwowob hard horror

    http://upload40.com/11357.html

    February 1, 2012 at 4:10 pm |
  18. Muhammad

    An investment bank is a buesniss that helps companies go public, by creating shares and selling them. They help companies create debt (bonds) and sell it. They also help companies merge or buy one another (M A).Because they need millions of dollars of IT infrastructure and have a giant rolodex filled with very rich people and investment companies (i.e. pension funds) it only makes sense for the investment bank to also buy and sell used stocks and bonds in the secondary market.A BOUTIQUE investment bank doesn't offer all of these services. For example, Merrill Lynch can get you any stock you want, manage your investment dollars for you AND take your company public. Lazard will only manage money for you and take your company public.Lazard doesn't offer clearing and prime brokerage either. Explanations of those services would take several more rounds of Q A.

    June 20, 2012 at 7:41 pm |

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