The Royal Bank of Scotland Group PLC's chairman on Friday acknowledged that the bank had miscalculated the public and political reaction to the £963,000 (around $1.5 million) bonus in shares awarded to Chief Executive Stephen Hester, who subsequently turned down the payment.
Philip Hampton, who had just weeks earlier waived his bonus, said the bank had disclosed Hester's award sooner than planned specifically to kill mounting speculation over Hester's package at the 83% government-owned bank.
"We knew it would be a difficult reaction, but the speed and scale of it took us by surprise," Hampton said in a briefing with reporters.
Hester took over as CEO in late 2008 following the government rescue of the bank that has become the focus of tension between politicians and the public—who want an end to bumper remuneration deals—on one side, and industry insiders on the other, who argue that top executives and workers need incentives.
Hester's decision to waive his bonus last Sunday night came after a political backlash and following the opposition Labour Party's statement that it would force a vote in the House of Commons, the lower chamber in the U.K. Parliament, on the controversial award. Prime Minister David Cameron had earlier said that anything in excess of £1 million would be unacceptable.
Hampton stopped short of saying he was confident that Hester would now stay and "see the job through" but said there had been no talk of resignations and that Hester was committed to the "challenging and toughest job in the world."
Hester's bonus, which was payable on top of his £1.2 million basic pay, is at the lower end of the range of sector pay, and Hampton said it would be very hard to replace him with someone of comparable experience and able to deal with the particular issues at RBS at those rates.
"Stephen was getting a conventional annual bonus at the bottom end of executive pay, and I was fully supportive of the remuneration committee's recommendation," he said.
"My position was very different because it is unusual for chairmen to have incentives and especially in the current climate," Hampton said. "It was part of a one-off incentive package that I inherited when I took on the job."
Hampton said that the bank was reviewing its pay model, which already "ticked all the boxes" and was in line with recognized remuneration standards. However, the main difficulty at RBS was its unique position as a commercial enterprise but with the government as the major shareholder. The objective of both the government and RBS is that the bank should be returned to profitably and return to full ownership in the private sector, he said.
This story originally appeared on WSJ.com.
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