Local anger over bank bungling

Contributed by editor on Feb 19, 2009 - 01:00 AM

The Prosser Perspective.... a weekly column from Dover and Deal MP Gwyn

19 February 2009

People attending my Street Stall on Saturday wanted to talk about
the world wide credit crunch, the recession and local job losses.

Understandably, they are angry about the mismanagement of the banks
which has caused some to come close to total collapse and others to
heap up massive operating losses and they are dismayed that some of
the people who helped us into this mess are still helping themselves
to massive bonuses.

Back-bench MPs like me have been pressing Ministers to address this
nonsense and although the Government has been very clear that there
must be an end to the short-term bonus culture in the banking sector
not much has happened until this week.

The Chancellor has announced that those associated with Royal Bank
of Scotland losses will no longer be rewarded for their failures –
in future bonuses will only be paid to reward good work and
long-term value creation, which is as it should be. So RBS is
undertaking a fundamental review of its remuneration policy to
ensure that it is totally aligned with the creation of long term
sustainable value for its customers and its shareholders.

This year is a transition period because of legal promises made to
RBS employees by the previous management and the Government cannot
be seen to be breaking the law but even in this transition year we
have imposed tough new conditions on RBS pay.

After cutting bonuses to the lowest legally allowed level of
payments will be significantly reduced and total cash spend on
bonuses will be reduced by a massive 90% compared with past years.

Payments to the 88,000 junior staff in the retail bank who are on an
average salary of less than £19,000 will continue and they will
receive their 10% profit-share scheme which is a contractual
entitlement. These payments relatively modest payments are legally
unavoidable due to decisions taken by the previous management.

So this year there are no discretionary payments whatsoever and no
bonuses – of any type - to anybody associated with a loss excepting
the legal caveat mentioned and in future years no cash bonuses to be
paid for performance in 2009 and there will be no discretionary
payments at any time for anybody associated with 2008 losses.

RBS is the UK’s largest lender to small and medium sized
enterprises, with over 30% market share and it’s also an important
mortgage and consumer lender. Its ability to perform this function
is crucial to the economy and the bank must be able to retain its
best staff to do this effectively in the future so they can strive
to generate future profit to help absorb recent losses. This will
protect the taxpayer, and ensure the bank meets its lending
commitments to support the economy.

More widely, the government's principles with respect to
remuneration in all banks will be no rewards for failure and going
forward, there will be no bonuses that are not founded on long-term
sustainable performance in the interests of shareholders and
customers – as the constituents at my Street Stall would say “and
about time too !”