RBS's £4 million CEO bonus not likely to go down well…

Euromoney Skew

January 09, 2012

Reports claim that RBS's investment banking CEO John Hourican is to receive a £4 million bonus, which flies in the face of the UK government's crackdown on executive pay

When the UK government formed the Conservative/LibDem coalition, one of the big issues to tackle in the court of public opinion was executive pay, and mainly "bankers' bonuses".

In a New Year's speech by UK Prime Minister David Cameron, he said:

"I will be bold about working to cure the problems of our society," said Cameron on January 2 in his official statement. "While a few at the top get rewards that seem to have nothing to do with the risks they take or the effort they put in, many others are stuck on benefits, without hope or responsibility. So we will tackle excess in the City just as we’re reforming welfare to make work pay and support families."

Since the bumper bank bailouts of yesteryear, notably RBS, bankers' bonuses have been particularly under scrutiny. UK deputy prime minister Nick Clegg said the government will address "the anger that people feel at the bonuses still flowing to bankers”. However, UK public outcry over the level of extra compensation bankers receive will mean the latest news about RBS executive John Hourican is likely to cause even more furore.

Afterall, RBS is 83% owned by the UK taxpayer.

According to media reports, referring here to the Financial Times story, RBS's chief executive of global banking and markets division, Hourican is set to receive a "special bonus" of £4 million:

The head of Royal Bank of Scotland’s embattled investment bank is in line to receive a special bonus this year of more than £4 million, an award that will be contentious given the government’s vow to crack down on excessive executive pay.

Hourican was awarded almost 29 million shares and options in 2009, as part of a long-term initiative to restructure the group following its disastrous tie-up with Dutch lender ABN Amro.

This is interesting, because on January 5, Euromoney reported on how RBS was paring back on operations and possibly relinquishing its investment banking division, and questioned whether these reports meant that RBS’s global head of banking and markets – Hourican – had failed.

And clearly from these latest reports – not necessarily.

The key for Hourican now is to make sure RBS keeps those businesses that continue to work for RBS operating at a high level. In the post-crash age, there is no reason why a firm that concentrates on closely related markets, such as DCM, FX and rates, should not prosper.

But looking at the bonus issue – it will be interesting to see how the government will respond to this and whether it will try to enforce its promised crackdown on "excessive growth" in executive pay, as described by Clegg.

Experts have remarked it is virtually "impossible" to curb or place boundaries on executive pay – unless the industries are nationalised:

"Curbing bonus payments is almost impossible for the governments to do without nationalising the industry," says Ralph Silva, managing director of Silva Research Network. "Putting limits on compensation plans for businesses owned by private shareholders just cannot be done, as it's against what the standard practices of capitalism are. This is especially difficult if they discriminate towards a single industry. They can tax it, but they can't kill it entirely."

However, as RBS is 83% owned by the taxpayer, it will be interesting to see if the UK government might use this well-publicised example to execute its promised crackdown, increase tax or, indeed, let it consequently and predictably pass and enrage the UK public further.

- Euromoney Skew Blog

RBS's £4 million CEO bonus not likely to go down well…

Reports claim that RBS's investment banking CEO John Hourican is to receive a £4 million bonus, which flies in the face of the UK government's crackdown on executive pay

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