A radical plan to pay bonuses at State-backed banks only when the taxpayer is in profit on its holding will be explored by the organisation in charge of managing the Government’s stakes in British banks.
The idea was raised yesterday by Andrew Tyrie, the chairman of the Treasury Select Committee, during a hearing with UK Financial Investments, which manages stakes in Royal Bank of Scotland and Lloyds Banking Group among others.
Mr Tyrie asked Robin Budenberg, UKFI’s chairman, whether future bonuses at RBS, which is 82 per cent owned by the State, should be “linked to taxpayers getting their money back”.
Mr Budenberg replied: “I can see it would be something taxpayers would feel more comfortable about. We will take it back. It is something we have considered.”
With RBS’s share price languishing at 26.64p, Mr Budenberg raised questions about how long it might be before the taxpayer is in profit on its stake in RBS, but agreed to consider the plan.
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Speaking to The Times after yesterday’s hearing, Mr Tyrie welcomed UKFI’s willingness to consider the plan, which he suggested might make future bonus payments more palatable for the taxpayer.
The Government’s ownership of RBS has increased the pressure on the bank to limit bonus payments to its investment bankers. Stephen Hester, the chief executive, waived a near £1 million bonus for last year after political protests, led by Labour.
“The remuneration problem is not going to go away. Some imaginative thinking is needed now, while we have a breathing space,” Mr Tyrie said.
The Government invested £45.5 billion in RBS during bailouts at the height of the financial crisis. The average price it paid for its shareholding was 50p a share, meaning that the taxpayer remains billions in the red on its investment. The select committee was trying to explore yesterday whether government interference on bonuses had made it impossible for the bank to be run on commercial lines.
Mr Budenberg denied before MPs that the Government had put pressure on UKFI to influence bonuses at RBS. He acknowledged that David Cameron had stipulated publicly that Mr Hester’s bonus should be less than £1 million but said that he had discussed it with Sir Philip Hampton, the chairman, before the Prime Minister’s pronouncements.
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UKFI existed as a “nuclear deterrent” to prevent government meddling in the affairs of RBS from damaging the value of the bank, he said. “The nuclear option would be for our board to consider our options and stand up and be counted.”
Mr Tyrie was reassured by the comments. “It’s our job to make sure UKFI can fulfil its mandate. It is important that we have on record the full extent of their exchanges with the Government on disposals and remuneration,” he said. UKFI is considering options for generating a return for taxpayers from RBS. They range from a full sale of the bank to the private sector to a free handout of shares to the public. It declined to be drawn on a possible timeframe for any disposal yesterday, arguing that it could be damaging to the investment to give the market a firm date. Commentators have suggested that a sale could be several years away.
Mr Budenberg said that it was a matter for George Osborne, the Chancellor, to decide whether he was willing to sell some RBS shares at a loss.