Hester bonus – no winners or losers
Stephen Hester has done the “right thing” according to Ed Miliband. Indeed he has but looking at his salary package he is certainly in a good position to do a ‘good deed’. However, the situation at Royal Bank of Scotland is the tip of a very large iceberg.
First, let’s dismiss (partially) the Conservative claims this is yet another thing you can blame on the previous Labour government. The previous government never named a sum that the RBS Chief Executive would be given. This was left to the Board of Directors which Labour did continue to allow to do such a thing; to decide on packages it believed to be ‘in the best interests of the shareholders.’ Indeed, all the indications are that this group of people were happy to give Hester his round million or so (what’s a few hundred thousand between friends). However, given the construction of bonus packages which are being recalibrated to offer shares in place of cold hard cash, executives and shareholders are rapidly becoming the same people. Empowering shareholders then is not even a good enough measure and its clear, as Ed Miliband has argued, employee participation in these decisions is key.
So, on one level the Conservative claim is entirely false but on another it is absolutely true. They just can’t tell the whole truth because they won’t commit to the obvious solution which is actual nationalisation of the banks. Neither will Ed Miliband. He has rightly taken plaudits for leading the charge against the Hester bonus but has consistently stopped short of proposing the only viable solution – tearing up the current contracts and bring the banks completely under state control.
This will eventually have to be done in any case because even the modest reforms proposed in the Vickers Report require state control to be properly implemented. Does anybody seriously expect Boards of Directors and shareholders to sit meekly by as their assets are broken asunder? Of course they won’t. It is time for some honesty and the way these contracts were done was wrong and was not the best deal for taxpayers nor the British economy. Furthermore, they are a ticking time-bomb we placed under any attempts at serious reform.
Until Ed Miliband admits that and adopts the solution above and acknowledges that I refuse to give him too much credit. In fact, I suspect neither will the electorate, I expect any Hester-bounce will be small to non-existent. Maybe I will be proved wrong but David Cameron has cleverly avoided personal involvement and let junior flunkies like David Willets plead the governments case and take the heat. Strategically speaking the governments wants the focus on welfare this week and the mid-week vote on amendments to the Welfare Reform Bill so the swift resolution will be as much to do with that than any looming opposition day debate.
What this whole episode has shown really and truly shown is the inadequacies of both main Parties when it comes to tackling the vested interest of the City. Ed Miliband has given us many rhetorical flourishes in the past few days – now let’s see if he can follow through in policy terms.