ROYAL Bank of Scotland executives have become millions of pounds richer in the last month as a rally in RBS shares has nearly doubled the value of pay awards – at least on paper.
This week John Hourican, the head of global banking and markets (GBM), nearly doubled the value of his shares and share options to an estimated value of £11 million, although yesterday this fell by about £500,000 as the value of RBS shares dropped
.
Mr Hourican, 38, was last month awarded a special one-off bonus of 21.3 million shares, as well as options on a further 7.4 million. Both "vest", or become available to him, in three years, subject to hitting certain undisclosed performance targets.
Payouts to top bank executives are a thorny issue, particularly for RBS, as it had to be bailed out by the government after booking a record £24.1 billion loss last year.
Dave Ellis, corporate governance director for investor activist Pensions Investment Research Consultants, said RBS was in a "dilemma", as it had to pay well to recruit and retain top people, but he criticised the bank for a lack of clarity on how bonuses were paid.
Mr Ellis said: "Banks, RBS included, face a dilemma.
"They need to recruit executives who have the confidence of their board and they have to incentivise these people – give them lots of money – but they have to show shareholders that they are being quite tough and are not throwing good money after bad."
An RBS spokeswoman said all share payouts were "hypothetical" until they vested and all bonuses were subject to being wholly clawed back if RBS executives failed to meet performance targets.
She said: "There is a massive turnaround required for them to pay out. It is the most ambitious turnaround plan probably in corporate history.
"They are exacting performance criteria. No-one else in the industry has reformed their remuneration the way we have," she added.
RBS chief executive Stephen Hester also received a "golden hello" of 10.4 million shares – yesterday worth £4.5m – in addition to his £1.2m salary when he joined the bank last November, but he is due to have more, after negotiations with government.
His initial share award was to compensate him for loss of benefits when he left his previous employer, British Land.
At present the bank is negotiating with UK Financial Investments (UKFI), the government body that manages the government's stake in RBS and HBOS, to work out a long-term pay deal for Mr Hester which is likely to include more shares.
The negotiations will also agree a pay deal for a new finance director to replace the outgoing Guy Whittaker.
RBS chairman Sir Philip Hampton also has bonus shares, worth twice his salary of £750,000. Yesterday, his 6.5 million shares were worth £2.8m.
Mr Hourican, head of the bank's most troubled area, is the only executive at the 70 per cent goverment-owned bank to have been awarded such a large one-off package of shares so far.
Other members of RBS management – the so-called ExCo, or the executive committee – have received only share options, which gives them the option to buy millions of shares for 28.2p – but only if they are worth more than that at the time they vest.
Share options in the executive scheme have not paid out for the past four years and are unlikely to pay out for the next two.
A bank spokeswoman said Mr Hourican's special award for 21 million shares "reflected the importance of the GBM business and its importance to our recovery and repaying the taxpayer".
Last week the GBM division reported revenues up 97 per cent although the bank reported over all losses of £857m in the first quarter of 2009.
While RBS looks to keep key staff with higher pay, top headhunters warned that packages for senior bankers had fallen by a half to a third of what they were two years ago.
