Hester in line for multi-million pound pay day if RBS turnaround is completed

Royal Bank of Scotland chief executive Stephen Hester is in line for a £9.6 million pay package if he leads a turnaround of the ailing lender, it emerged today.

RBS won support from UK Financial Investments (UKFI), which controls the Government's more than 70% stake, for Mr Hester's salary and long-term bonus arrangements at a meeting last week.

UKFI is thought to have backed the move because of links to the bank's share price. This would have to pass a 70p threshold for the long-term bonus to be paid in full, by which point the taxpayer would have made millions in profits.

The stock is currently trading at around 37p after hefty share falls earlier this year in the wake of the Government bailout.

Mr Hester is in line for £1.2 million in salary, around £2 million in annual non-cash bonus payments and around £6.4 million of long-term share and stock option awards.

Long-term incentives would be based on a mix of targets and the RBS chief's options would be paid for 2009 but would only be able to be redeemed after three years.

But critics said the decision to tie the bonus mainly to the performance of the bank's shares could encourage risk.

Roger Lawson, of the RBS Shareholders Action Group, said: "It is absolutely outrageous that the Government does not use its power to bring the remuneration of bankers in these companies down to a reasonable level.

"Do they need to pay him this much to make him work harder?"

He said basing a bonus on share price could mean the focus would be put solely on this one measure at the cost of other strategies.

"This just encourages risky behaviour," he said.

"It is based on getting the share price up and that will depend on many factors other than the performance of the company itself."

An RBS spokeswoman confirmed the deal had been agreed but was in the process of being finalised by the firm's board.

"We have said consistently it is all linked to performance and will only be paid out if targets are met," she added.

A statement from UKFI said: "UKFI expects all awards to be based on long-term sustainable performance which would rebuild the business of the banks."

Mr Hester's pay package was agreed in the same week that his predecessor agreed to a voluntary cut to his controversial pension payments.

Sir Fred Goodwin, vilified as being the man at the helm of RBS when it crashed into public ownership last year, was the centre of public outrage over the size of his retirement fund.

Last week the ex-chief executive offered to hand back more than £210,000 a year of his pension payout, reducing his payout from £555,000 to £342,500 a year.

Public fury was fanned earlier this year when it was revealed his agreement to step down from the bank as the state came to its rescue effectively doubled his pension pot, leaving him with a £703,000-a-year package – including a £2.7 million lump sum.

Under his leadership RBS was heavily exposed to toxic assets and bad debts, and disastrously bought Dutch bank ABN Amro at the top of the market in 2007 before the credit crunch struck.

The new chief executive pay deal comes as reports revealed the RBS corporate hospitality package for Wimbledon is costing up to £300,000.
An email leaked to the Mail on Sunday describes the bank's booking of an "entertainment suite" for more than 42 guests for each of the tournament's 13 days, at a cost of at least £19,500 a day.

The bank will also pay up to £100 for each Centre Court seat and £75 a head for lunch, according to the paper.

RBS said it was tied into the Wimbledon contract but stressed it had slashed corporate spending by 90%.