Important lessons from RBS

According to the media “there was outrage” at Stephen Hester being awarded nearly £M1 bonus. Who exactly was outraged, and why?

Here is a man, with a contract, doing a difficult job in a sector that commands high remuneration. In my view he was perfectly entitled to his contractual pay, and anyone in employment should now be concerned that politicians and the media have the power to retrospectively hound them out of the financial rewards that they’re entitled to.

What the government and opposition should be addressing is the merry go round of executives in the bigger companies sitting on each others’ remuneration boards and voting each other ever bigger packages.

Had the previous government understood this they could, as 81% shareholders, have used their power to set remuneration packages that would not have caused their present leader’s outrage.

There’s an important lesson here for all company directors and it’s this. It’s good to reward success, but be sure that you understand the incentive schemes you implement, and always honour them. If you feel that someone, or a group of people are getting too much it’s your fault. You set the rules, so you got it wrong.

By all means change the rules for the next year, but do it sensitively. A company I worked for had a dominant position in a market sector. They had six salesmen working in that sector, and one year the Sales Director set the bonus scheme such that all six got far bigger bonuses than he had anticipated.

He set the rules for the following year’s scheme so that it was almost impossible to earn a bonus. Five of the six left the company within weeks and joined competitors. The one who stayed was the worst performer. At a stroke the Sales Director had given away the company’s dominant position in the market place.