Royal Bank of Scotland boss Stephen Hester has hit the headlines again by turning down his controversial £1 million bonus, just as the founder of easyJet tabled a motion to end what he claims is a “gravy train” at the company.
According to the BBC, Sir Stelios Haji-Ioannou, whose family still owns 37.5% of the airline that he founded 17 years ago, has tabled a motion at the firm’s annual meeting next month to block a proposed pay deal, while denouncing executives over their "fat cat bonuses".
Press reports elsewhere have suggested that the board could resign en masse if the company’s shareholders agree, but Sir Stelios said: "These guys are welcome to resign anytime. I know as shareholders we could easily replace them with talented executives and experienced non-executive directors who will cost half as much in bonuses."
The directors have proposed a pay deal that could award 10 senior executives £8 million-worth of shares over the next three years.
Sir Stelios continued: "We must take a stand against directors who seem to regard our company as their personal piggy bank to be dipped into at will. The gravy train of £180 million free shares issued over the last decade must come to an end now. Simply put, if shareholders can vote down bonuses at Easyjet, then bonuses will come down in all listed companies."
Such a situation would be good for both shareholders and pensioners, he added.
The move follows Sir Stelios’ decision, reported in the Guardian last week, to send the company a three-page letter on executive pay, in which he accused the firm of creating bonuses based on “phoney calculations”. The missive was dispatched following revelations by easyJet that it had paid a bonus of £840,000 to chief executive, Carolyn McCall, bringing the total earned in her first full year in the job to £1.5 million, according to its annual report.
But Sir Stelios, who quit the airline’s board in 2010 after a row over strategy, claimed that, under its long-term incentive plan, the £8 million in shares would be issued this month and paid out if it met what the easyGroup entrepreneur described as “phoney” return on capital employed, which is a way of measuring how efficiently a business has invested its capital.
“The gravy train has gone wild at EZJ….we must stop it,” he said at the time. He believes that the way in which the company calculates ROCE produces figures that are three times higher than alternative methods.
In an apparent attack on its institutional investors, which include Standard Life and Legal & General, Sir Stelios added: “I am aware that many of the other EZJ shareholders are listed companies themselves so they have a conflict of interest as they want to carry on with the same fat-cat City bonus culture! Turkeys will never vote for Christmas.”
But he endorsed Business Secretary Vince Cable’s recent announcement suggesting that “a shareholder vote of at least 75% of the shares be required to approve bonuses in future, becomes law ASAP”.
Potential board wipe-out
In news elsewhere, RBS’ Hester renounced his £963,000 shares-only bonus after succumbing to "enormous political pressure". The move followed a statement by the Labour Opposition that it would force a vote in the House of Commons on whether to block the bonus, after Prime Minister David Cameron refused to do so himself.
Although BBC News’ business editor Robert Peston said that the board felt that Hester had earned his renumeration for making RBS a less risky organisation, the directors felt that the "game was up" when it looked as though MPs were going to vote against it.
Royal Bank of Scotland, which is 83%-owned by the taxpayer, had been hit with a chorus of disapproval last week after announcing it was to award Hester, the bonus on top of his £1.2 million salary.
The payment in the form of 3.6 million shares was about 60% of the maximum he could have been given. But BBC News’ Peston said that Cameron and Chancellor George Osborne allowed the controversial pay-out to go ahead because they feared that Hester and much of the board would quit if they vetoed it, creating even bigger problems for the bank.
The controversy seems set to continue, however, as Peston claimed RBS told him that it had not yet decided on how much to award Hester in respect of his Long Term Incentive Plan, which is likely to be worth much more than the bonus.
Nonetheless, the pay-out was condemned by opposition politicians and union leaders alike. Shadow Business Secretary, Chuka Ummunna, for one, told Sky News that Hester did not deserve it.
“You receive a bonus when you’ve done something out of the ordinary, something above and beyond. And the point is, most people in this country do not get a base salary of £1.2 million, which is 46 times the average salary of a worker,” he said.
But Hester is not the only member of RBS to receive a large renumeration package. John Hourican, head of its investment arm who has been charged with overseeing a restructuring that will lead to 3,500 job cuts, is set to receive up to £4 million in long-term incentive shares that he was awarded in 2009.
The UK’s biggest banks are all expected to unveil their bonus plans next month at the same time as their annual results are published.
