Bonus culture or Bully culture

Labour have succeed in bullying the boss of RBS, Stephen Hester, into giving up his bonus.

They said that he should be stripped of his bonus. What they don't say is what he actually did wrong to deserve it.

RBS failed and was bailed out before Hester even took the job. He was brought in to try to salvage a profitable business from the wreckage, and it was a Labour government that hired him to do it.

Remember, it was Labour who created the failed banking regulation system that led to the collapse of RBS and the other banks. Even Ed Balls admits that. Why do the people who helped destroy RBS now want to punish the person that they hired to come in and fix it?

When he was hired his employment contract said that RBS would be run as an independent business, not a government department. RBS executive pay was to be set by the board of RBS and it would be set high enough to attract talent to the company. They would offer performance related bonuses to encourage those executives to do a good job.

Stephen Hester was in line to receive 60% of his bonus. That says that he is doing a good, but not great job. The bonus is there to work harder and encourage him to do better.

Now that Labour are out of power, why do they think that this arrangement should be changed?

I guess the real question is: how good a job is Hester doing? Did he earn his bonus?




I looked at the latest RBS accounts and they seem to be slowly returning to health.

Here is a summary of the latest 9 months compared with a year earlier:

	Sep-11 £M	Sep-10 £M
Income	22,158	25,203
Operating expenses	(11,834)	(12,629)
Profit before charges	10,324	12,574
Insurance claims	(2,439)	(3,601)
Profit before impairments	7,885	8,973
Impairment losses	(5,747)	(7,115)
Operating profit	2,138	1,858
Non-operating items	(3,144)	(1,841)
Profit/(loss) before tax	1,210	(391)
Taxes	(1,436)	(637)
Profit/(loss) from continuing operations	(226)	(1,028)
Profit/(loss) attributable to shareholders	(199)	(1,137)

Observations:
- Income is falling. That is because they are unwinding their business to take them out of unprofitable/risky areas. That is a good thing.
- Insurance claims are uncontrollable. You can't blame Hester for them, as long as they earn more in insurance fees than they give out in claims (which they do, but that is not shown here).
- Impairments are falling. They are losses from writing down bad loans inherited from pre-crash times. That is good.
- The operating profit is rising. That is good.
- Non-operating items shows a loss. That is because they are writing down bad loans inherited from pre-crash times.
- They have moved from a pre-tax loss to profit. That is good.
- They are paying more taxes because they making profits. That is good for the tax payer.
- Their post-tax losses are decreasing. That is good.
- The loss to the share holders (tax payers own 82% of the bank) is falling. We are losing less money on our investment. That is good

Now lets look at how the tax payer is doing:

	Sep-11 £M	Sep-10 £M
Taxes paid	1,436	637
Loss on shares (@82%)	(117)	(932)
Total	1319	(295)

So, compared with last year, the tax payer has gone from losing £295 million to earning £1.3 billion. That seems like a great job to me. That man deserves a bonus!