The issue of bankers’ bonuses is tricky enough for the Government already. But ministers appear to have painted themselves into an even tighter corner by insisting that RBS state publicly that the Treasury has a veto over the size of its 2009 bonus pool.
It seems that the Treasury told RBS that it never expected to exercise the veto. It just thought it should be there as a backstop.
But to insist that it was put in the document detailing RBS’s entry into the Government’s toxic asset insurance scheme was asking for trouble. City investors are incensed at what they see as the Government’s willingness to ride roughshod over other shareholders’ rights. Institutions say it is for the board to decide how big bonuses should be in order to incentivise and retain key staff. If, for political reasons, bonuses are forced so low that it leads to an exodus of staff, that would clearly be against the interests of other shareholders. If the Government wants to do that, it should fully nationalise RBS. It can’t have it both ways.
As I said yesterday, if Sir Philip Hampton, RBS’s chairman, believes that the Government’s demands on bonuses are not in the interests of other shareholders, he should threaten to resign. Indeed, it seems that RBS has been advised by its lawyers that, in those circumstances, Sir Philip would have no option but to resign.
There was always going to be horsetrading between the Government and the board over the size of bonuses. But you would have expected it to take place behind closed doors. In some ways, the transparency is commendable. But by insisting that the veto be put in the document, the Government has ensured a public bust-up. Rather than playing it down yesterday, the Treasury managed to escalate things by briefing that it would block any plans for a bonus pool for RBS’s capital markets business that was signficantly above last year’s level of about £1 billion. As RBS is thinking of a pool of nearer £1.5 billion — to reflect record profits of about £6 billion — we now have almighty stand-off.
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If the board backs down it will be accused of selling out other shareholders. If it stands its ground, critics will accuse it of holding the taxpayer to ransom.
As for the Government, it can’t win. Whatever bonuses RBS is allowed to pay, they will be seen as outrageous by a large proportion of the population. And there will be nowhere for ministers to hide, because these bonuses will have been explicitly approved by the Treasury. Brilliant.