Hester pockets Sir Fred’s pension payback
Stephen Hester is set to become Britain’s first £10m nationalised industry boss and all he has to do is double the share price of Royal Bank of Scotland. In a bear market and from a bombed out value, that surely can’t be that hard?
(See LON:RBS)
In fact, the first tranche of Hester’s windfall kicks in if the shares rise to 40p and they were above 37p when the board agreed the package. The final slice comes when they reach 70p.
The rewards have been agreed with shareholders though, so that’s OK. Sorry, agreed with shareholder: with UKFI, the state’s fund manager, owning 70 per cent of RBS’s equity it matters little what other investors say so long as the Treasury is happy.
And the Treasury has only one objective with Royal – to get out at a profit. So rather than worry about other key performance indicators such as customers satisfaction, lending levels, write-offs, relative performance etc etc, UKFI watches only the share price.
Taxpayers make a profit out of the Royal rescue if the shares exceed 50p so while Hester’s first reward under the long-term options scheme still leaves the public at a loss, the full package would ensure a profit form him and a profit for us.
That is £1.2m annual pay, £2m bonuses and £6.4m of shares under the long-term plan. Add in the 10m shares that were his golden hello – another £7m when the shares reach 70p – and Mr Hester will need a good bank to look after his money.
The alignment of interests do make it look like Hester is working for UKFI rather than the bank however.
Turning round RBS will certainly be hard work requiring real talent but it is a steep price to pay. If Hester can simply avoid allowing RBS to go bust the shares will recover from their low levels as the bad news falls away.
The biggest cloud on the horizon may be that as the higher the share price goes the more tempted the government will be to sell shares – and that will depress the price. Hester however should toast his predecessor Sir Fred Goodwin; by forfeiting part of his pension Royal now has more to pay the current chief executive.
