Hester defends RBS bonus plan

12th Jan 2010 12:16

Stephen Hester, chief executive of taxpayer-owned bank Royal Bank of Scotland, today defended the bank's heavily criticised bonus structure to a group of MPs.Hester, who also added that the bank's recovery from near collapse was making good progress, told the Treasury Select Committee that the "ability to keep and motivate good people was his single biggest problem at present".Hester, who himself can earn a maximum £9.6m under a bonus scheme set up last year and whose parents think he earns too much, said RBS is paying "the minimum we can get away with in the market place" to retain its key staff.Rumours at the end of last year suggested that the board had threatened to walk out on en masse because of possible bonus caps from the government on its investment bank business. Hester also criticised a growing "politicisation" of the bankHe refused to comment of the size of RBS's bonus poll for 2009, however, which has been estimated at £1.5bn. The exact size will be determined next month. He did say that a "handful" of RBS staff would be paid cash bonuses "due to previous legal commitments." Anyone earning more than more than £39,000, however, would be paid a bonus in shares and the overall levels would be based on market rates. "We are a part-prisoner of the market," he said. While the subject of bonuses dominated the 90-minute session, Hester also added that RBS is currently ahead of target with its recovery plan."We are well ahead of where I thought we would be. We did not slip on as many banana skins as I thought we might," he said."That gives me encouragement to believe we can hit all the ambitious targets we put out for the recovery of RBS."RBS is two thirds of the way to cutting the size of its balance sheet in line with its plan and had approximately halved the size of its investment bank, the heart of most of its problems during the crisis, Hester added.