U.K. politicians are fuming about a bonus of nearly a million pounds ($1.5 million) given to the chief executive of Royal Bank of Scotland, which cost the U.K. government 45 billion pounds to bail out and nationalize three years ago.
Stephen Hester, the current CEO, was brought in to rebuild the bank and, for his work, the board of directors has decided to award him 3.6 million shares. But at a time when the government is hitting Britons with painful spending cuts and tax hikes, the question of bonuses in nationalized companies like RBS has become sensitive.
"Some bankers have decided not to take a bonus this year, like the chief executive of Lloyds," Deputy Prime Minister Nick Clegg said Friday, referring to Antonio Horta-Osorio, CEO of part-nationalized Lloyds Banking Group. He has said he would not accept a bonus in view of his two month absence because of stress.
"It's up to Stephen Hester, frankly; that's his individual decision," said Clegg.
A spokesman for the opposition Labour Party said Hester didn't deserve a bonus. Chuka Umunna, Labour's business spokesman and a former member of the Treasury Select Committee, said that Prime Minister David Cameron's government had failed to act to curb excessive pay.
"People listening to this program will be flabbergasted that nothing has been done about this," Umunna said in a BBC radio interview.
Hester's bonus is worth 963,000 pounds based on Thursday's closing share price of 26.75 pence and comes on top of his annual salary of 1.2 million pounds. He cannot sell the shares, however, until late 2014.
Taxpayers, who own 82 percent of the RBS shares, will recoup their 45 billion pounds investment in bailing out the bank only if the share price rises to 50 pence. At that point, Hester's bonus is worth 1.8 million pounds.
RBS shares were down 0.4 percent in midday trading in London Friday, recovering from a 2 percent drop earlier.
Jeremy Browne of the Liberal Democrat party noted that Hester's pay in three days is as much as the annual pay of a soldier in Afghanistan. "I think he should reflect on that," Browne said, suggesting that Hester refuse the bonus as a matter of honor.
But Gary Greenwood, analyst at Shore Capital, argued that the comparison was "somewhat irrelevant, with the real issue being what Mr. Hester could earn in a similar role elsewhere."
Prime Minister David Cameron had said he hoped Hester's bonus would be significantly lower than what he got last year.
"He said he thought the chief executive's bonus should be lower than it was last year and it less than half what it was last year," said a spokesman for Cameron, briefing reporters on condition of anonymity.
A year ago, Hester was awarded 4.5 million shares, then said to be worth 2 million pounds. They would be worth 1.3 million pounds at the current share price.
Though RBS' share price had fallen by nearly half last year, Chairman Philip Hampton said the board was pleased with the progress which had been made under Hester.
"His pay is strongly geared to the recovery of RBS, which he was recruited to turn around, having played no part in its collapse," Hampton said.
London Mayor Boris Johnson, a Conservative like Cameron, said he found the bonus hard to justify.
"I find it absolutely bewildering because RBS occupies the same status in the economy as Gosbank did in the Soviet Union: it's a state-owned bank," Johnson said. "The idea that this is not in the control of the Government seems to me to be far-fetched."
Hester was hired to run the bank after Fred Goodwin, who led RBS's ill-fated takeover of Dutch bank ABN Amro, stepped down in October 2008 as the government was spending billions to prop up the bank.