David Cameron refuses to act over Stephen Hester's "bewildering" bonus By DAVID MADDOX Published on Saturday 28 January 2012 00:17 THE UK government last night appeared to wash its hands of the bonus of almost £1 million awarded to RBS chief executive Stephen Hester, despite a clamour for ministers to intervene and block the award. Calls for action came from across the political spectrum, uniting Conservative London mayor Boris Johnson and Labour leader Ed Miliband. But Prime Minister David Cameron made it clear that the government would not use its 81 per cent share in RBS to block the bonus, worth about £963,000, being paid in shares. Mr Cameron let it be known he was pleased the amount was less than half the bonus awarded to Mr Hester last year, when he received £2.5 million. A Downing Street spokesman insisted that the government's hands were tied because of a deal signed by the previous Labour government which meant RBS shareholders could only advise on bonuses, not veto them. However, there were angry claims that under Mr Hester's leadership RBS is still failing to support businesses properly despite signing the Project Merlin deal with the government to help boost growth. In addition, RBS's shares are worth less than when Mr Hester took the job in November 2008, after Sir Fred Goodwin was forced out. Mr Miliband accused Mr Cameron of a "disgraceful failure of leadership" and unions branded the award "utterly immoral." Mr Johnson said he was "bewildered" by the payout. London mayor Boris Johnson joined the condemnation, saying he was "at a loss" to justify the scale of the payment. He said he had sympathy for Mr Hester and wanted an end to "incessant banker-bashing." But he went on: "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. The idea that this is not in the control of the government seems to me to be far-fetched. Chancellor George Osborne said the only alternatives would have been more expensive for the taxpayer. He said ministers could have blocked the bonus only by tearing up the "arm's-length" arrangements drawn up when RBS was saved from collapse in 2008 and taking over day-to-day operations. Speaking from the Swiss ski resort of Davos, where he is attending the World Economic Forum, Mr Osborne said he recognised the frustration over bankers" pay. But he added: "The alternatives would have been worse for the taxpayer. Either there would have been a much larger bonus, of the kind he would have got a few years ago, or the British government would have had to take over complete ownership of RBS and over-ruled the board, and I think that would have cost the tax-payer more as well. Meanwhile, Professor Patrick Minford, a leading Thatcherite economist, supported the bonus and argued that better payments for top managers were essential to revive the sector. He said: "Some argue bonuses are poorly related to results, and shareholders - especially a government shareholder as in RBS - should stop them. But these same shareholders brought in these very packages, to get the managers they needed. A vigorous competitive banking sector, attracting the best possible managers, is needed to revive lending and restore vitality to our economy. Mr Hester, who this year received a salary of £1.2 million, could receive 3.6 million shares in the 83 per cent state-owned bank. They cannot be cashed in until 2014. UK Financial Investments (UKFI), which oversees the government's stake in RBS and other banks, said the figure reflected the "significant contribution" Mr Hester made towards rebuilding RBS in 2011. While RBS's share price has halved and the company has shed thousands of jobs over the past year, Downing Street said "good progress" had been made towards achieving its objectives by slicing around £600 billion from an overblown balance sheet and increasing lending to business. The Prime Minister's spokesman said it was "ultimately a matter for Stephen Hester" whether he chose to accept the bonus, after Liberal Democrat minister Jeremy Browne issued an outspoken appeal to the banker to turn it down. Deputy Prime Minister Nick Clegg said he had "a lot of sym-pathy" for Mr Browne's argument, but insisted it was an "individual decision" for the banker. Mr Cameron was not directly involved in negotiations over bonuses at RBS, but was kept informed on the progress of discussions between UKFI and the bank's board, his spokesman said. Under the contract drawn up by the Labour administration, Mr Hester was "entitled to be considered for a bonus in good faith," based on performance against his objectives, the spokesman added. But Lord Myners, a Labour minister at the Treasury at the time RBS was taken into public ownership, said: "There is nothing in the employment contract of Stephen Hester or any director of Royal Bank of Scotland which binds the company or its remuneration committee to pay a mandatory bonus. All matters relating to bonuses are at the full discretion of the board of directors and the shareholders, including UKFI, who have elected them. Meanwhile, Labour accused First Minister Alex Salmond of being silent on the issue. But Mr Salmond hit back, accusing Labour and the Conservatives of creating "the unacceptable bonus culture." He said: "Banks in receipt of significant public-sector investment should bear in mind their responsibilities to taxpayers, and exercise restraint. It's just a pity that neither [former Labour chancellor] Alistair Darling nor George Osborne ever did anything to bring this about. Age: 51 Education: Got a First in politics, economics and philosophy at Queen Margaret Hall College, Oxford University CV: Was chief executive of British Land before joining RBS. Prior to that was financial director at Abbey National and worked for the Swiss bank Credit Suisse. 2008: Appointed by Labour Chancellor Alistair Darling as chief executive on 21 November, 2008, replacing Sir Fred Goodwin after the bank was bailed out 2010: Waived his 2009 bonus (thought to be worth £1.6 million) 2011: Received a bonus of £2.5 million for 2010 2012: Basic annual salary, pension contributions and benefits at RBS: £1.6 million. Has been awarded £930,000 bonus for his work in 2011 WHILE there has been fury over Stephen Hester's £963,000 bonus, it is small compared to what other bank bosses are getting. Barclays chief executive Bob Diamond is expected to receive around £11 million in bonuses on top of his salary of £1.35m. Last year he received a £6.5m bonus. HSBC boss Stuart Gulliver is understood to be in line for a £13.9m bonus on top of his £1.25m salary. Last year he received a £5.2m bonus. The man expected to walk away with the biggest bonus this year is JP Morgan chief executive Jamie Dimon. It is understood he will receive £14.7m on top of his basic salary of £950,000. Large bonuses have also gone to chief executives of major European banks which have been under fire over the euro crisis. Joseph Ackermann, who has just stepped down as head of Deutsche Bank, received a bonus worth €7.1m for his results in 2010.