RBS Thrashes Out Pay Deal For New Boss McEwan

Royal Bank of Scotland (LSE: RBS.L - news) (RBS) is on the verge of agreeing a pay deal for its new chief executive that will be sharply lower than that of Stephen Hester, his predecessor.

Sky News understands that UK Financial Investments (UKFI), the agency which manages taxpayers' 82% shareholding in RBS, is poised to sign off on a remuneration package for Ross McEwan, who will be appointed later today to one of the toughest jobs in banking.

Mr McEwan is understood to be in line for a base salary of approximately £1m, less than Mr Hester's £1.2m annual pay, as well as bonus and long-term incentive plan (LTIP) entitlements that are also understood to be lower than those of the outgoing chief executive.

The RBS board has agreed to Mr McEwan's appointment and is awaiting the approval of the Prudential Regulation Authority (PRA), but is expected to say tomorrow alongside half-year results that he is to replace Mr Hester.

It is likely that the new boss's pay deal will be disclosed alongside the news of his elevation to the top job.

Under the terms of his contract, Mr Hester was eligible for a bonus of twice his basic pay and an LTIP award of four times his salary, theoretically putting him on an annual £8m-plus package.

However, he rarely collected anything like that sum after waiving several annual bonuses under intense political pressure and failing to meet performance targets that would have triggered the release of long-term share awards.

Because he is not currently on the RBS board, Mr McEwan's remuneration is not disclosed in an identifiable way, although RBS did pay him roughly £3m in shares to buy him out of his contract with his previous employer in Australia.

People close to the situation said that no decision had been made on Thursday afternoon whether Mr McEwan's pay deal would replicate that of his Lloyds Banking Group (Other OTC: LLOBF - news) counterpart, Antonio Horta-Osorio, whose annual bonus is partly dependent upon the price at which the Government sells a chunk of its 39% stake in the bank.

RBS's majority state ownership means that George Osborne, the Chancellor, will also need to approve Mr McEwan's pay package before it is announced.

Sky News revealed last week that Mr McEwan, a New Zealander who currently runs RBS's UK retail banking operation, was the frontrunner to take over from the departing chief executive.

RBS and UKFI declined to comment.