News from the 0.1%

The CEO of RBS turns down his £1m bonus.

Today’s headline in Britain about the CEO’s bonus at the Royal Bank of Scotland, rescued from collapse in 2008 and now owned 83% by the British government:

Mr Hester, the chief executive of Royal Bank of Scotland, has bowed to mounting public anger and agreed to give up shares worth almost £970,000.

Naturally Stephen Hester’s decision to live on his paltry pay of £1.2m has nothing at all to do with saving the Cameron-Clegg government from embarrassment and possible humiliation in the Commons. Where are the Murdochs’ phone hackers when you need them?

If the bonus was necessary to get Mr. Hester to do a proper job, he will now underperform. Logically he must now be sacked.

In another glimpse into the entitlement world of the banksters, the Sunday Times (yesterday, p.25, paywall) quotes the chairman of a rival bank sounding off indignantly (my italics):

And if he goes, how much would they have to pay the next person? It would either be somebody decent, who will want £10m upfront because they won’t trust the government, or they’ll get the chief executive of an NHS trust, pay them £100,000, and it will be a multi-billion-pound disaster.

Never mind that the chief executives of NHS trusts get basic pay of around £150,000, not £100,000, plus modest performance bonuses by City standards sometimes reaching £20,000: similar to the pay of senior NHS consultants. What’s astonishing is the top banker’s lack of imagination about the rest of the world. Running a big hospital is a order of magnitude more complex than running a bank, even a big and troubled one. You have thousands of high-technology and intrinsically dangerous products (medical procedures) as against a bank’s dozen or so; the key staff – the doctors – are prickly and highly specialised experts, with entrenched professional autonomy; and the consequences of screwing up are deaths, not paper losses. Would you trust Mr. Hester to run a teaching hospital?

Author: James Wimberley

James Wimberley (b. 1946, an Englishman raised in the Channel Islands. three adult children) is a former career international bureaucrat with the Council of Europe in Strasbourg. His main achievements there were the Lisbon Convention on recognition of qualifications and the Kosovo law on school education. He retired in 2006 to a little white house in Andalucia, His first wife Patricia Morris died in 2009 after a long illness. He remarried in 2011. to the former Brazilian TV actress Lu Mendonça. The cat overlords are now three. I suppose I've been invited to join real scholars on the list because my skills, acquired in a decade of technical assistance work in eastern Europe, include being able to ask faux-naïf questions like the exotic Persians and Chinese of eighteenth-century philosophical fiction. So I'm quite comfortable in the role of country-cousin blogger with a European perspective. The other specialised skill I learnt was making toasts with a moral in the course of drunken Caucasian banquets. I'm open to expenses-paid offers to retell Noah the great Armenian and Columbus, the orange, and university reform in Georgia. James Wimberley's occasional publications on the web

12 thoughts on “News from the 0.1%”

  1. Gotta disagree with your reasoning here, albeit perhaps not your conclusion. Big hospitals resemble big banks much more than you think–except big banks are worse.

    In both cases, the place really isn’t run by the CEO. Big hospitals are run by (or at least for the benefit of) the senior doctors, much the same way that big universities are run by (or at least for the benefit of) the senior faculty. (We’ll ignore the football team.) Similarly, big banks are run by and for the benefit of the business unit heads and their top henchmen. The “bank” is a mere franchisor of its reputation, capital, and operations.

    There is only one difference. Senior doctors and professors, although doubtless self-interested, are constrained by craft values. This means that the patients and students benefit from hospitals and universities. There are no craft values in investment banks, and business unit heads control the accounting. It’s much tougher for a bank CEO to exercise authority in this context, although admittedly hard enough for hospitals and universities.

    I’m not sure I disagree with your conclusion. Maybe being a bank CEO is so hard it is effectively impossible. In which case, any square-jawed character actor who can appropriately reassure shareholders and regulators would do.

  2. Surely there is an Indian bank president willing to do the job for a tenth of the cost.

    1. I make no claim that Mr. Hester has been doing a bad job reversing the legacy of the truly catastrophic Sir (!) Fred Goodwin, though my son, a customer, would disagree. The RBS is SFIK doing OK on profits and financial stability, not so well on keeping credit going to small British firms. The question is whether the going rate for ordinary banking competence is really £2m a year.

  3. One of the reasons that a big hospital is harder to run is that the measure of performance is more complex. So long as the bank turns a profit, or a profit comparable to its competitors, it is OK. How to measure whether a hospital has succeeded? Patient outcomes? How to measure them? Whose outcomes count? and lots more stakeholders: minister of health, medical and other health professions, patient advocates, plain ordinary patients, journalists, researchers … etc.

    1. To a first approximation, an NHS hospital trust has two sets of objectives: patient satisfaction, proxied by waiting lists (with arbitrary and politically imposed targets) and complaints; and health outcomes, proxied by death rates in different specialities, hospital infections, readmissions and so on, set by professional sub-colleges. I doubt whether the chief executives spend much time worrying whether their portfolio of targets is complete, as opposed to trying to reach good scores on the ones they have within the budget constraint.

  4. It does seem an interesting contrast. The difference between a good hospital CEO and banking CEO can mean a great deal. But I think what this comment highlights is the degree to which banking is fundamentally situated in a position to reap enormous profits, while hospitals merely deal in what are at the end of the day human interests. This can actually result in hospitals providing better care yet being less profitable. Its always sickening when bankers pretend their compensation is a reflection of actual value they create, as opposed to merely occupying a structural sweet spot in the economy.

  5. Even if the guy did turn down the bonus the Labor party should make hay out of it. Embarrassment and humiliation would be a good thing right now.

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