17 November 2011 / Money

£500m bonuses to RBS bankers but 1m customers penalised

Illustration of man grabbing dangling carrots

Comments 21

Last week, RBS announced that it will pay around £500 million in bonuses to its staff this year. But with 1 million basic bank account holders restricted from withdrawing cash, isn’t it time to review these payouts?

The state owns 84% of RBS. The same RBS whose profits just plunged – and the same RBS that wants to deny basic bank account holders from using rivals’ cash machines. To me, this just doesn’t add up.

Bankers bonuses never fail to get into the headlines. They are always a controversial issue that polarise opinion and provoke debate. I am not here to judge the rights and wrongs of bankers receiving bonuses, but to come at it from a slightly different angle.

Decisions through a different lens

I would argue that a bank that’s almost wholly owned by the taxpayer has an extra responsibility to act fairly towards its customers.

The simple truth is that RBS wouldn’t be in business were it not for the large bailout it received from the government. In my mind this means that the bank has to make commercial and business decisions through a slightly different lens.

Obviously the bank still has to be a viable commercial entity and make sound business decisions. However, the majority state ownership of RBS means that the decisions it makes will be judged to a different standard.

RBS can’t pick and choose

Let’s take a look at the recent decision by RBS to stop users of basic bank accounts using non-RBS cash machines as an example.

As we discussed recently, basic bank accounts are typically taken out by less well-off consumers – those who can least afford to pay to withdraw cash. Once banks start to pick and choose who can be a part of the bank system the benefits of universality start to break down.

When you then consider that this decision is being made at exactly the same time that the bank is paying out hundreds of millions of pounds in bonuses, the decision is even more maddening.

RBS say that they are running basic accounts at a loss as they pay a charge every time someone checks their balance or makes a transaction at an ATM run by another company. However, they are still able to afford to pay huge bonuses to staff that have contributed to falling profits. I don’t think that’s fair. Do you?

Comments

richard says:

18 November 2011

This Government is totally and completely inept when it comes to the allocation of resources. Their mantra is support the rich – hammer the poor.

We need a re-election now,.

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leofrog says:

18 November 2011

I don’t think an election would change anything – who would you be thinking of electing??? Remember it was the wonderful GB first as chancellor and then as PM who was largely responsible for the mess in which we now find ourselves. All senior politicians are in government for just one thing and that is to feather their own nests, and the only way they rise to the top is by constant genuflection to superiors.

Realist says:

18 November 2011

As an account holder, tax payer and (very small shareholder) and retired person I am very much against the bonus culture as presently applied.

Not only are the salaries and perks of the senior executives and the like very (to put it mildly!) high, they are also getting ‘bonuses’ on top for failing to increase the value of the company and make meagre profits for part of the year. This is to the detriment of shareholders, government [taxpayers, pensioners etc.] whilst at the same time the bank is reducing any benefits for account holders and small businesses.

They are probably suffering from years of financial errors (from a bank!) and until they can rectify all that there should be no bonuses and senior remuneration levels cut. If they don’t like then they can leave -they hardly cover themselves in glory- and some new blood will take over.

Until the government are paid back for the bailout (by whatever means – the rest of society should not be second best) and then the share price recovered to at least 50% of what it peaked at and dividends paid ALL bonuses should cease. The same should be the case for Golden Handshakes and Goodbyes!!!

Do your jobs and get your pay.

Yes I am biased and miffed but can you blame me as some of my pension relied upon the banks performance and I am now living in fuel poverty *&^^%$$%

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Chris McBride says:

18 November 2011

Hi Realist and many thanks for your comment,

With fuel poverty now affecting a quarter of all UK households this is a serious concern.

I’m sure you’ve looked into many different ways of cutting your bills but thought you might be interested in this short guide on other tips to tackle the big energy price rises we’re now facing:

http://www.which.co.uk/energy/saving-money/guides/how-to-cut-your-energy-bill/10-ways-to-save-on-energy-bills/

Chris

leofrog says:

18 November 2011

Totally agree with the previous comments – well done – I have personally lost thousands of £’s when the government plunged Lloyds into the pit by forcing them into this ill-conceived “deal” – shares purchased @ £3-4 now worth pennies!!! Bonuses and kick-backs in every direction except the shareholders and pensioners AGAIN!! Used to get a nice little dividend from my Lloyds shares – now – nothing!!!

rip says:

18 November 2011

One of the arguments for paying bonuses is to ensure we attract the best executives to the financial industry in the UK. I am wondering when this theory is going to kick in.

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ekc says:

3 December 2011

Well said I have often said sack the whole lot and advertise their jobs and bonuses at a quarter of the current wage.

no more excuses says:

19 November 2011

Not for the first time, and, no doubt we will visit this situation again and again. But, under the banner of ‘fair’…. and just by ‘one’ bank? Immediately with just cause the cry goes out as ‘FOUL’ and a list of well placed epithets swiftly follow, could we though examine why the banks [in this case RBS] are doing this, at least we can say they have scored a spectacular ‘own goal’ in the process, we know it cannot make an instant change as they so readily inflict upon everyone else, yet, we can change it.

We know change is in effect – Vickers and so on, so Ring – Fencing will occur. Banks didn’t want it although they agree some form of internal change would be required. After all how do you hide the self-inflicted c**k-up created? The Basel agreements I, II, and III in our mind prove that. Therein they must re-examine their profit engendering efforts from all avenues, including that of the humble bank account. Not those specifically already providing income i.e. overdrafts, packages etc.. but a root and branch revamp on what they want as a bank account that makes money, regardless of any previous ethics/history/fairness of what ‘simple’ banking is all about. They’ve brought the dealers ethos to the front line. A commission for a sale and one for purchase, but is this the investment side of banking taking over, you see no Chinese-wall here.

Retail banking [as such] has had no internal protection – no ring fencing, what we as customers pay in can/could be used at any time to support other activities of a bank albeit some restrictions applied, but in essence this what occurs, has occurred, and in their reasoned minds will continue.

This soon to be change though has also provided the perfect smokescreen of confusion readily promoted by the banks and their trade association. We, you’ve seen it…Dear Prime Minister…Mr Chancellor..We can’t do this…ohhh look how much…and we’ll lose so many jobs!! Meanwhile, at the coalface, and I suspect scripted, we [they] will effect change now by doing this and that..all in the name of our responsibilities. All along, night and day our silent funds continue to be used by them, producing profits for the well being of the bank/s. So the trade-off was, and has been, we will give banks our money for safe keeping knowing full well they can use it when we can’t but we will be able to get it out when and where we like, in full. No Excuses. No Charges.

The distaste continues for the onlooker and account holders. And here comes the own goal… when RBS announced the restrictions on usage of ATM’s, it advertised account holders would be able to use the Post Office (somewhat a sugar coated pill) failing to say it applied to Debit Card holders only…..and closed their Basic Bank Account to new customers. AND as aside to this, they also want to re-negotiate payment for ATM usage by their Not-For-Profit-Organisation’s customers, ‘customer card holders’ in Scotland.

Invariably the elderly, and vulnerable suffer by these draconian impositions, something out of Dickens, but if this footprint is set in stone by the bigger and biggest in banks the rest will surely follow. Banking is, in the UK, one of do as I say not as we do with some reluctant justification thrown in for good measure. When you add the ending of traditional cheques in favour of Cash Cards and online banking, the closure of rural branches – both banks and Post Offices, local buses increased fares, transport costs everywhere……you get the picture, the word ‘fair’ pales.

No…FAIR it is not. NEVER. Moreover, is it reasonable? Better still, is it un-reasonable? Nothing is ever fair, antics like gross salaries in the face of meltdown elsewhere borders on criminality to right-minded thinking people. Banks, well we are going to be stuck with them. Reform, long time coming and we will be stuck with that unless we modify that reform to be constructive for everyone. One simple assertion, all of us needs some form of banking facility. RBS have no wish to provide it, but they have done and should return to doing so, end of. Wherein they [RBS] and others can’t see the wood before the trees, perhapsnthey should understand this, you cannot de-construct the very origins and principles of implied trust and banking in one fell swathe. Changes will effectively be underscored by legislation.

Fundamental change to protect the vulnerable indeed, all sectors of society, begins by making it mandatory to have Basic Bank accounts WITH Cash Card access FREE everywhere. By all means we can have other types of accounts, that is competition and based upon individual circumstances, but since banks refuse en-mass to put the foundations in place we must rescue the situation ourselves. Would you all like to read http://thenomoreexcuses.blogspot.com It is totally apolitical. It also has the E-petition http://epetitions.direct.gov.uk/petitions/15120 to get the debate, to get this current Government to enact change.

You do not expect bankers to agree, do you? Well RBS? Fair….? No More Excuses!

nfh says:

20 November 2011

RBS pays bonuses to staff who generate revenue for the bank, often traders with a high level of skill and expertise whom it wishes to retain so that they will make further profits for the bank. RBS is charging customers who cost the bank money by using other banks’ cash machines. The two subjects are unrelated and totally separate matters in different parts of RBS’s business. There is no justification for cross-subsidising one profit against the other loss. Customers who cost the bank money need to be incentivised not to do so in the same way that traders who generate revenue for the bank need to be incentivised to repeat their success.

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no more excuses says:

20 November 2011

Since you’ve mentioned cross-subsidising… what has the retail part of banking been doing, but propping up the investment side!! And it now wants to claim assertive rights [and the wages] for not doing or operating within its limits. This is not an accusation just to the RBS but to all banks who’ve overplayed their hand. Just who was it who created this mess in the first place!?

There is also a point more relative, plain honest hard working people and everyone one else which form the backbone of customers, the retail side shall we say, have done so by holding an account in the belief of a old-fashioned word, trust. Let us add loyalty, necessity and perhaps convenience.

It is though very convenient to merge investment operations to the retail part for your argument as it is where the monies are made [and lost big time] does it mean therefore by the same token you would expect to see those very same traders repay the ‘incentivised’ bonuses gained for their ‘successes’?

Could this be more empathetic to FAIRNESS than the one-sided take-all-you-can-get point you raise. Perhaps we should view to call banks the new-pyramid-retail-banking-sensation-one-armed-bandits, at least then their honesty would be declared as odds. No More Excuses.. then.

ekc says:

3 December 2011

This way of paying bonuses is exactly why we got in such a mess. Sortsighted gains but very longterm negative fallout. The bonus system would be better if bonuses were paid 18 months or so after the event to make sure no losses were incurred through it.

Realist says:

20 November 2011

“RBS pays bonuses to staff who generate revenue for the bank, often traders with a high level of skill and expertise whom it wishes to retain”

Is this not what a salary is for? Paying someone to do a good job of work. When I managed multi £M projects I did not expect a bonus for success but perhaps for something exceptional!

Or as implied previously the corollary is: if they do not make revenue for the Bank then claw back a ‘bonus’ for the bank’s owners!!

Lets get to just performance related pay for them all with real downsides for those not performing. This should not be linked to just monetary amounts being managed or new customer accounts sold to existing customers. Based upon the accounts/share price/dividends/profit/service levels/customer satisfaction/complaints levels not many would be getting much extra……….

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nfh says:

22 November 2011

“Is this not what a salary is for?” – No, the salary is not performance-related. There are dozens of banks in London, most of them foreign, who provide employment to UK residents, generating significant income tax revenue for HM Treasury. These banks all pay bonuses as performance-related pay to traders who make more money than their “budget” (target) for the year. If RBS doesn’t pay bonuses to reward its traders (bonuses being funded by a small fraction of those traders’ profits), those traders will take their talents to one of the many foreign banks in London, losing Corporation Tax for HM Treasury, or worse to a bank abroad, also losing income tax for HM Treasury.

Realist says:

22 November 2011

nfh,
Glad to see someone will put their head above the parapet to try to justify the endemic bonus culture!

However consider these:
1. If it were only the exceptional performance rewarded to traders then perhaps there could be some justification; however a large bonus is considered the norm.
2. It is not only traders who receive big bonuses, so where’s your argument for all these
i.e the rest of the excessive payouts.
I note that bank Executives have been reported in the papers as having made a loss owing to their bank’s poor performance ( such as Mr Hester). They have not made any loss, just not gained perhaps quite as much.
3. Should not those who are financing the bank also share in the ‘traders successes’, and as they work for us all (as shareholders or by extension taxpayers in general) we should be better rewarded than they who work for us. Nothing at all is coming our way.
4. It’s always an excuse for higher rewards to say we must keep the best. All financial institutions seem to reward by bonuses but we can not assume all institutions have the best and there are not others around who could do an equally good job. If we lose some of the supposedly better traders to other banks then they will replace theirs (they cannot all afford to payout the biggest bonuses to all their traders) so we can pick up some of their traders and we will be able to do that at reduced cost! (our current ones are not doing well enough at present and I suspect these are the same ones that got us into trouble….
5. It has historically been other large financial institutions (in it’s widest sense) that have ruled shareholders meetings and it is in their own leaders interests to perpetuate that type of bonus culture as they are members of the ‘club’. The smaller investor is only recently now stating to play a bigger role and the populations voice is now becoming more vociferous. Time to take note.
6. As for tax then yes there is a lot paid, rightly so, and by all other categories of society too. However these type of institutions have the ability to avoid much of the tax they ought to be paying. If this really was a major issue for them and the staff (traders I take it you limited your point to) would also be off like a shot to say the Cayman islands. Not a mad exodus is there. Oh I forgot, their mistakes get supported by the rest of us…..bail them out….to big to fail…just one type of failure (risky mortgages )….but then here we go again, lending money via third parties to European failures (another bad call?)
7. Do you value your health? Do you want to feel safe? Do you value those (and the like) higher than a profit? If so perhaps you might consider the bonus ought to be paid to one of the emergency services (for sake of argument) next time you have a need of their support or other workers who put their life on the line – not just those taking a risk with OTHER peoples’ money!
8. Reward quantity ( too great) out of line with effort and skill except perhaps for a very small minority. Just look at executive remuneration rises over the last decade compared to us mere plebs. Some can be arguably justifiable but not again as a normal position and certainly not for those failing financial banks

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nfh says:

23 November 2011

“However these type of institutions have the ability to avoid much of the tax they ought to be paying” – yes, like any multi-national company, these banks do mitigate their tax liabilities. However, would you prefer that they move their Europe/Africa time zone trading operations outside the UK so that they pay no UK Corporation Tax and their traders pay no UK income tax? Be thankful that London is such a magnet for global banks which generates a huge amount of tax revenue for HM Treasury. As a UK resident, this is something to be grateful for, not something to criticise.

Realist says:

22 November 2011

…and I might add where do all these bonuses get us? Today RBS worth (as valued by the market) virtually approx. 97% down from early 2006!

Realist says:

23 November 2011

nfh,

I cannot argue against the fact that tax revenues are paid and most companies mitigate their tax position. They would be daft not to do so.

However this is a red herring. Turning the discussion around to what you say would be the conclusion (if traders got no bonuses), I assume you would argue that those companies that do not pay excessive bonuses ( and there are plenty of them out there) will have lost all their best staff abroad, those multi nationals are no longer based here and we now get no benefit via the tax system. Not True, plenty of companies based here ( and who actually earn their money abroad) benefit the UK exchequer. Perhaps we would like more. I wonder why they stay here when you claim the banks would not?

These other companies are hardly ever underwritten by the UK tax payer in the way banks have been. Banks are currently in a very privileged position and they abuse it!

Perhaps we should agree to differ on those points, – but Posters have put forward several against the bonus culture and there has been little posted to negate those other arguments.

Perhaps there should be no bonuses until the banks can repay the ‘little old lady’ who has lost so much of her pension, invested by the ‘bonus receiving individuals’ into other financial institutions, which are losing most of value and being rewarded handsomely whilst ‘the lady’ sits around her 1 bar electric fire shivering this winter wondering why her winter fuel payment has been cut. Oh yes given to prop up the banks and their bonuses……..

frances says:

28 November 2011

“God loves the poor –
that’s why He made so many of them.”

(J.K. Galbraith)

Les says:

24 January 2012

Banks will NEVER change until the government actually does something quickly to stop this obscene practice of giving themseves huge bonuses whilst the rest of us suffer high inflation, low interest on savings, difficulty in obtaining loans etc etc etc
Stop pontificating Cameron and get on with it!!!

John says:

27 January 2012

I used to have a Girobank account. I started it nearly 40 years ago when they were offering free in credit accounts as opposed to the Nat West which I was with needing £100 credit balance to not pay charges.
I needed about £100 pounds (which was quite a lot of money in those days, my mortgage was £44) so I changed, but the Nat West made things as difficult as possible for me and suggested I should take out a loan at about 12% (it was when interest rates were a lot higher).
The manager seemed completely unable to see my point of view. He just could not understand my reasoning that it did not make sense for me to pay him interest to borrow my own money!

Girobank worked very well for me, a current account which paid no interest and a linked savings account which, although not the best interest was fair and you could switch from on account to the other on a phone call so you could write a cheque and ring up to transfer the funds to cover it.
I had my salary paid into the savings account and about twice a month when I paid the bills I would tot up the cheques and transfer the necessary, the balance would be saved earning interest without ending up being left in a savings account which may without warning stop paying interest.

I fear this was too easy for the ordinary population who could cope with the system and was taking too much of the current account money out of the commercial banks so they had to get it sold off and screwed up.

I have dumped my Santander account ( which it ended up as ) in favour of an RBS one because at least I can get it to do what I want it to, but I agree with the sentiments expressed against the bonuses and feel that as RBS is now owned by the government they should reorganise it on the lines of the old Girobank.

Steve S says:

21 May 2012

I wonder if the banks and other executives of companies paying themselves outrageously high bonuses pay the same level to their frontline staff? I doubt it as the criteria applied to the lower echelons means if they are lucky they might get a few hundred.If a rule was applied that bonuses were paid at the same level percentage wise to ALL staff would they be so high.Its not that difficult to up your prices and/ or shed staff or just churn money around which seems to be all some of these companies do.Where are the really skilled and innovative directors everyone keeps referring to?

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