Hester's holiday howler

Interesting to note that the thing that seems to have annoyed many people the most about Stephen Hester's evidence to the select committee yesterday (still waiting for the transcript) was not the defence of bonuses. Rather it was his reponse to how he would deal with the public reaction to bonus announcements:

"I might go on holiday for a long time."

Mrs P was spitting feathers, as, it seems, were quite a few unpolitical people judging from conversations this morning. Maybe the it's the slighty 'naughty schoolboy' tone of it, or the apparent lack of seriousness, or the fact that many people aren't even thinking about holidays. In any case it was badly misjudged.

Politics versus business

Interesting to see Damian McBride fall on his sword, and the right thing to do in the circumstances. The meejah are in a feeding frenzy about this, understandably. On Breakfast, the presenter tried to get Liam Byrne to say that McBride should never work in Government or for the party ever again, which he sort of did (whilst clearly being uncomfortable about the commitment he was being asked to make). Realistically there's going to be heavy meejah flak if McBride does get a decent job elsewhere soon.

But does the same standard apply to business people who mess up? For example, one thing that is not in question in the Fred Goodwin pension debacle is that the early retirement deal was agreed to by the board. However you cut it, Fred Goodwin got a pension enhancement, despite having led the company to the point it needed state life-support. That is no question a reward for failure, and it took place in the midst of a financial crisis. It was an apocalyptically bad decision. So then should we conclude that the directors involved with (probably) the most high-profile reward for failure in UK corporate history have suffered enough by no longer being directors of RBS, or should if affect their other directorships?

Obviously I think that it should call into question their competence as directors, but actually BP (for example) is already spinning that Peter Sutherland is not under threat, and there doesn't seem to be (so far) much pressure on Bob Scott at Yell either. Now clearly there's a case to be made in their defence (Sutherland's going to retire anyway, him and Scott were not as central at RBS as MacKillop etc). But you do rather get the impression that if you mess up in business it only gets held against you at that one company, and if you're a 'name' you get to see your time out because it's a bit disrespectful to challenge your credentials. What's more you get a lot more cash for doing a bad job than a spinner.

In the big scheme of things which is the bigger outrage and has done the most damage - letting a bank destroy itself and giving the chief exec a pension boost for his hard work, or plotting some stupid (and no question highly distasteful) web gossip that never actually got aired? I'm in no way seeking to excuse McBride and Draper, just making a comparison of how we treat different types of people. In the case of politicos we seem to want to burn them at the stake, or a least destroy their careers, but in the business world people continue to draw massive salaries in other jobs despite having cost the taxpayer millions because of their failures.

Just seems a bit lop-sided to me.

RBS pay vote looms

The (symbolic but ultimately meaningless) vote on the RBS remuneration policy is imminent. It will probably be the biggest vote against a remuneration report to date, driven by UKFI's decision to vote against. I'll post up the result when it's public. Of course the vote has no actual power, and Sir Fred can sleep easy on his money.

UPDATE: It's just over 90% against. Biggest vote ever against a remuneration report (maybe any resolution?) and the first time a bank has lost any vote.

McKillop steps down from BP board

I've already said my bit on this, so I think he was right to go. It also (rightly) tilts the balance back in favour of Paul Myners in terms of the RBS pensions row. But why stop at McKillop? The FT's Lombard column helpfully points out where some other ex-RBS directors currently draw a hefty salary. Bob Scott - also embroiled in Pension-gate (I'm joking) - is chair at Yell for example. One to watch.

Just a bit more on Fred's pension

Last year's annual report says:

All UK based directors, with the exception of Guy Whittaker, are members of The Royal Bank of Scotland Group Pension Fund (‘the RBS Fund’) and are contractually entitled to receive all pension benefits in accordance with its terms. The RBS Fund rules allow all members who retire early at the request of their employer to receive a pension based on accrued service with no discount applied for early retirement.

This year's annual report says:

The RBS Fund rules allow all members, including executive directors, who retire early at the request of their employer to receive a pension based on accrued service with no discount applied for early retirement. The provision for an undiscounted pension on early retirement at employer request will not apply to any executive director appointed in the future. The RBS Fund is closed to employees, including any executive directors, joining the Group after 30 September 2006.

A couple of things. A lot would seem to hang on that word 'allow', which seems to imply that this is a discretion. In addition the 2009 wording seems to suggest that the discretion will not be used if future. That suggests that the RBS board could have let him take early retirement but with a reduced pension, which would contradict Tom McKillop's latest missive.

On the other hand, you could read the statement as simply setting out the current provision - no director appointed in the future will get the unreduced pension deal. But the scheme Goodwin was a member of is closed to new entrants anyway, so in a sense that is obvious. That could imply that this is a rule that has to be followed in early retirement situations.

There's an easy way to find out if McKillop is spinning or not. If there is any RBS employee out there who retired early and did not get an unreduced pension then clearly it was a discretion.

UKFI will vote against RBS remuneration report

It's confirmed via the UKFI website, and here's the official line:

John Kingman, chief executive of UKFI, said: “UK Financial Investments fully supports the approach the present RBS board is taking to remuneration matters, including in relation to the remuneration arrangements for the present chairman and chief executive. “Nevertheless, UKFI has decided that it cannot formally vote in favour of the resolution to approve the Remuneration Report. This is for one reason only. The Remuneration Report discloses, as a matter of record, the decision of former members of the RBS board to treat Sir Fred Goodwin and Johnny Cameron as retiring early at the request of RBS, so enabling them to take undiscounted pensions. That decision was taken in the past. Nevertheless, UKFI is not satisfied that it was in the company’s interest – and therefore UKFI’s as a value-oriented shareholder. UKFI therefore cannot vote in favour of it.”

Interesting - and welcome - that they have announced their voting intentions ahead of the meeting, which is more than any other UK investor does. Also, this will be the first time that a UK bank (maybe any bank?) has lost the vote on its remuneration report, and it took a state-sponsored investor to do it. Will be interesting to see if any fund managers actually voted for the rem report - I really wouldn't be surprised if they had given what a soft line most of them take on pay.

The next question is Tom McKillop. Given that he was chair at a company responsible for both arguably the worst corporate deal in UK history and certainly the worst example of rewards for failure surely his position on the remuneration committee at BP is untenable, and as a director in general. If we can't say this bloke isn't a good director, where do we draw the line?

UKFI and RBS

Is UKFI going to vote against or abstain on the RBS remuneration report? That's the suggestion in some press reports today. Interesting development if it does happen for a number of reasons. First, it will disrupt the argument that somehow the Government was responsible for Fred Goodwin's pension. Second, it will demonstrate that UKFI won't just be supporting everything that the boards of the banks in which it has a stake suggest - that in turn will make fund managers who take a softer line look well out of line. Thirdly, it will surely raise some broader questions about shareholder engagement over pay. The vote is only advisory, so will this example lead to calls that it should be binding?

RBS rumble ripples out

Given Tom MacKillop's role in the Fred Goodwin pension deal, it's not surprising to see that investors are querying his role on the remuneration committee at BP. If directors are going to have any kind of accountability, surely a vote in favour is called for here?

It's also worth noting that Myners has stuck the boot into shareholder advisers (amongst others) who gave the RBS remuneration report the thumbs up last year. As I pointed out previously, the ABI's support is especially surprising given their guidance on early retirement provisions.