FT.com - article

Stephen Hester, chief executive of Royal Bank of Scotland, made a vigorous defence of the bank’s pay policy in front of a number of MPs on Tuesday, saying it had gone further than ”any other bank on the planet” to restrict bonuses. Mr Hester said RBS did not want to ”pay a penny more than we have to” in bonuses but said the bank had to keep up with rivals if it was to retain key staff. He admitted that although his family believed he was overpaid, his £9.6m pay and bonus package was worth ”close to nothing” as the bank’s share price had fallen so sharply in the past year. In a gruelling session in front of the Treasury Select Committee, Mr Hester was asked why, given the scale of RBS’s losses, job cuts and drop in share price, the bank would pay any bonuses at all. ”We are trying to be among the leading reformers in the industry,” said Mr Hester. He noted that the bank was paying bonuses in shares rather than cash and had far-reaching clawback clauses. He denied claims that staff who previously worked for ABN Amro, the Dutch bank taken over by RBS, were being paid bonuses sooner then planned and said the restrictions on the cash element were more stringent than the old ABN policies. The committee also quizzed the heads of Lloyds Banking Group and Northern Rock over pay. Eric Daniels, chief executive of Lloyds, was repeatedly accused of incentivising management to make job cuts given that part of the bank’s bonus structure was linked to the savings gained from integrating HBOS, which it bought last year. Mr Daniels denied executives were being encouraged to make redundancies. He said Lloyds was not an investment bank and pointed out the average salary of its staff was £25,000 and the average bonus £1,000. Gary Hoffman, chief executive of Northern Rock, said the nationalised bank, which froze bonuses last year, could resume payments this year. He said 2009’s performance would be substantially better than that seen in 2008, when the bank made a loss of £1.4bn. “We have set (performance) targets and if these are met then the incentive scheme is likely to pay out,” he said. However, Mr Hoffman said he was mindful of the fact that the bank had received significant support from the taxpayer and would not be rewarding failure. The bank executives were also questioned on their lending policies. The bailed-out banks have agreed targets with the government to lend to individuals and small businesses. Mr Hester and Mr Daniels said that while they had met their targets for mortgages, small business lending had proved more difficult. Mr Hester said there was still competition among small business lenders, while demand had fallen. “We cannot lend material amounts more, even though we would like to,” he said. Mr Daniels said that while new lending to businesses was ahead of last year, customers had made higher repayments, which was making their lending targets hard to meet.