RBS pay deals set to draw criticism When John Hourican was awarded nearly 29m shares and options in Royal Bank of Scotland in April 2009, five months after assuming leadership of the group's fractured investment banking business, his pay deal was judged to be comparatively conservative, RBS executives insist. With RBS shares trading at about 28p, the 21.3m shares handed to the fast-rising Irishman were worth about £6m ($9m), subject to performance targets and could not be cashed in for three years. The value of an additional 7.4m share options would be dependent on the ability of senior executives such as Mr Hourican and group chief executive Stephen Hester to rebuild an institution that was the recipient of the largest state bail-out, worldwide, during the financial crisis, and is still 83 per cent owned by the UK taxpayer. A year later, the potential value of that same deal ballooned to nearly £15m, as RBS's share price topped 58p. Mr Hourican was awarded a further 15.5m RBS shares in March 2010, a little over a third of which have already vested. As RBS's fortunes have declined in the intervening months, however, so too have Mr Hourican's. His 2009 package is now worth a maximum of £4.3m at Monday's closing price of 20.07p. The options, with an exercise price of 28p, are valueless. On Thursday, Mr Hester will announce the bank's plan to dramatically reduce the scope of its investment bank, hiving off its underperforming equities business and restoring focus on its core fixed income franchises in the US and Europe following intense pressure from the government. RBS shed about 2,000 bankers from Mr Hourican's global banking and markets division over the past three months as the outlook for the industry deteriorated, taking headcount down from 19,000 at the end of 2010 to about 17,000. Senior executives familiar with the restructuring plan to be presented this week say the leaner operation of its future will employ about 15,000 people, and maintain that deeper cuts - as some fear inevitable - would threaten its viability. Analysts say a radical overhaul of RBS's investment banking division is expected to ultimately drive up group returns, albeit at the expense of a short-term dent to revenues, as it will weed out the least profitable and most capital intensive businesses. In a note to clients on Monday, Raul Sinha, an analyst at JPMorgan Cazenove, estimated the shake-up would boost return on equity at RBS's core businesses, excluding Ireland, to 15.5 per cent in 2013, compared with 13.4 per cent if the investment bank remained intact. However, any hopes of a quick and easy turnround of the business are likely to be dashed. Mr Sinha expects the realignment to take three to five years and cost in the region of £2bn-£3bn. It is the next two months, however, that may be the bank's most critical, RBS executives say, as the bank works to convince its biggest shareholder of the merits of its restructuring plan as well as the pay packages earmarked for its top bankers. David Cameron, UK prime minister, has already entered the debate several times, warning RBS executives as early as November that a bonus pool of £500m - about half of the total pot for 2010 - would be viewed as excessive. The Financial Times disclosure that Mr Hourican's 2009 pay deal is now set to vest in April has further escalated tensions in what is shaping up as the most contentious year-end bonus season across the City of London, as the government vows to crack down on pay. On Monday, Mr Cameron repeated his criticisms about executives reaping "rewards for failure." When it was put to him that RBS had suffered a bad year, he replied: "Absolutely." For Mr Hourican, choosing whether or not to accept the award could ultimately prove to be a career-defining decision. Senior insiders at RBS acknowledge that, given the highly charged debate over pay, cashing in £4m of shares at this time would likely fuel a public and political outcry that could make his position at the bank untenable. Among the cadre of senior bankers who were persuaded to stay at the bank during what one executive termed its "darkest moments," a decision by RBS's board to significantly reduce those pay deals now, in response to pressure, would likely trigger an exodus.