Stephen Hester, the chief executive of Royal Bank of Scotland (LSE: RBS.L - news) , has bowed to mounting public anger and agreed to give up a £1 million bonus.
Mr Hester’s move emerged on Sunday night, just hours after it had been announced that Labour was to trigger a Commons vote on his controversial award.
Ministers welcomed the decision, which may help contain the Coalition’s growing political embarrassment over executive pay at state-owned banks.
It may also raise questions about Mr Hester’s long-term future at RBS, which he has run since it was rescued by the taxpayer in 2008. Mr Hester was said to have been concerned he was becoming a “pariah”. City sources suggested last night that he and members of the bank’s board had considered resigning because of the growing row over his remuneration. He had been in line for a bonus of shares worth almost £970,000, on top of his £1.2 million salary.
A source close to the bank said: “Stephen took this decision in the light of mounting political pressure.”
Should Stephen Hester have given up his bonus?
George Osborne, the Chancellor, last night welcomed Mr Hester’s decision and called for him to remain in his post. “This is a sensible and welcome decision that enables Stephen Hester to focus on the very important job he has got to do, namely to get back billions of pounds of taxpayers money that was put into RBS.”
Mr Hester’s proposed bonus had triggered a political row as Labour said no bonus could be justified because RBS is failing to meet lending targets.
Although the Government owns 83 per cent of RBS, it remains a public company run by an independent board of directors. Ministers had said they were unable to block the bonus award but called for Mr Hester to forgo the payment voluntarily. That position drew political attacks on David Cameron.
Ed Miliband, the Labour leader, said Mr Hester had “done the right thing”. He added: “It is a shame out of touch David Cameron did not realise he should also do the right thing.”
Lord Oakeshott, a Liberal Democrat peer, last night said Mr Hester’s decision was “better late than never” and put it down to pressure from the Lib Dems and Labour.
“I’m glad that eventually Stephen Hester has seen sense and seen the outrage of most people in this country and Lib Dems who have been complaining bitterly about this for weeks,” he said.
Sir Philip Hampton, the chairman of RBS, indicated over the weekend that he will waive an even larger bonus this year.
Earlier yesterday, Iain Duncan Smith, the Work and Pensions Secretary, said ministers would be very pleased if Mr Hester followed his chairman’s example. “It’s for him individually to make a decision about that. As a member of the Government I don’t have a collective opinion on that, but I must say, nobody would be happier than the Government if of course he took such decisions.”
Mr Hester’s decision came hours after it was announced that Labour planned to trigger a vote in the Commons, offering MPs (BSE: MPSLTD.BO - news) the chance to vote to condemn the bonus award.
Labour sources had said the vote would demonstrate the Prime Minister’s “failure of leadership” over pay at RBS and give MPs a chance to “show the public’s disapproval of Mr Hester’s bonus”.
There could be more embarrassment yet to come for ministers over RBS because as well as his bonus, Mr Hester is also potentially eligible for an award under a long-term incentive plan, worth as much as £4.8 million. It was not clear last night if his entitlement has changed.
Danny Alexander, the Chief Secretary to the Treasury, earlier said that ministers were effectively unable to block the bonus. The bank’s directors had decided to award Mr Hester his bonus, and Mr Alexander said that intervening in that process would have damaged the bank and cost the public more money.
RBS shares lost around £350m of their value on Monday, sliding 2pc to 27.16p.
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