So, despite the fuss, former RBS boss Sir Fred Goodwin still has his pension. The bankers left in charge still have their ludicrously high salaries, their bonus schemes and substantial pension pots and the Government itself still can't seem to make the changes required to turn back the culture of greed. I say this having heard one banker recently on the radio describe his £1 million a year salary as 'modest'. Try telling that to the now more than two million or so people who are out of work or the thousands of families facing repossessions.
Compare this with president Barack Obama, who has done much more in a culture where government intervention in the market is normally resisted at all costs. His c£350,000 annual salary limit for any executive in corporations rescued by the US government is a step in the right direction. At a stroke it undermines the facile argument trotted out by directors claiming themselves victims of the market as far as top executive compensation is concerned.
The remuneration processes of the UK's top companies are still largely a closed system, where many of those who decide have a personal interest in the outcome. If we are to change the culture of personal greed we have to reduce the ability to profit personally over and above a generally accepted level of reward for significant responsibility.
There are a large number of capable people willing to take on the reform of the banks and their reconstruction for far less than £1 million a year. After all we pay the prime minister just over £194,000 a year and if we believe Westminster gossip there are many people in the current government who covet the role, let alone the Tory and LibDem leaders, Messrs Cameron and Clegg. The culture will not change, however, if we stop at putting a ceiling on top executive earnings. We also have to address the big lie of paying for performance.
On a nearly annual basis I have raised the issue of a failure in the private sector to adopt performance-related reward principles that genuinely reflect the performance of senior executives. In particular I have criticised payments given for failure and the events of the past few months prove just how the culture of reward despite performance has taken hold in UK boardrooms. Sir Fred's deal is clear: waive your right to compensation for loss of office and/or notice and we'll fix you a nice annual income for life through applying our discretion on your pension. That way we'll all escape the headlines - or so they thought.
But while the media is obsessed with Sir Fred's greed, in my view he is the wrong target for public displeasure. Whoever agreed that action should be pursued by the bank's shareholders for dereliction of duty. They should be banned for life from holding office in any public company. There are no circumstances that should allow directors to approve early retirements that do not fit in full the rules of the pension scheme and the rules of good governance. And I challenge anyone in the current or former RBS board to show me where their own rules on executive terminations and the granting of early immediate pensions allow them to approve such a decision for a poor performing executive whose leadership destroyed so much more than the capital value of the once-great bank he led.
Yet again I conclude one of these columns by pointing out that HR leaders are critical players in this debate. Of all the questions that should interest readers of this journal the one I think we should be asking is what was the position taken by the HR director of RBS to this decision? Are HR leaders in the forefront of the fight to put back good values into corporate governance or are they, like so many others involved in these decisions, tied in by far too much of a personal interest in the outcome? Or maybe they are just not in the room at all.
- Chris Bones is dean of Henley Business School, chris.bones@haymarket.com.
