Royal Bank Of Hester

Fred "The Shred" Goodwin

As a chicken-egg scenario, the case of Stephen Hester and the Royal Bank of Scotland provides a classic example. Does the bank exist for Hester or is Hester just another bank employee at Hester's Bank? The bank's chairman (Sir Philip Hampton) has stated that a new incentive scheme will pay its chief executive (Hester) 'lots of money' if he meets targets on share price and 'economic profit' and presumably, the chairman will also benefit substantially. The detail of the three-year share plan that is designed to 'incentivise and retain' Hester and turn the state-controlled bank around is currently being 'finalised'. Is this being 'finalised' by the bank or by the government, as ostensibly representing the interests of the taxpayer who technically underwrites the bail-out finance? The government body which holds the taxpayers' 84% is the UKFI.

• A Companies Act Company (Company no: 6720891), with HM Treasury as its sole shareholder. The company’s activities are governed by its Board, which is accountable to the Chancellor of the Exchequer and – through the Chancellor – to Parliament.

This could pay Hester up to £10m if the RBS share price tops 70p. The increase amounts to 62%:

43.33p -> 70p (16.03.2010)

Shares: 56,365.72m @ 43.33p =

£24.42327bn

If Hester does well he [personally] will get 'lots of money'. The bank could theoretically also do well. The chief executive is responsible for implementing policy that instructs the bank's other employees how to conduct (internal/external) business. This may be good or bad, but under instruction an employee is compelled to act on any gambit. Or resign. The targets will be very demanding, but will meet principles endorsed by the independent Financial Services Authority: potentially very worrying.