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The Prosser Perspective.... a weekly column from Dover and Deal MP Gwyn Prosser

19 February 2009

People attending my Street Stall on Saturday wanted to talk about the world wide credit crunch, the recession and local job losses.

Understandably, they are angry about the mismanagement of the banks which has caused some to come close to total collapse and others to heap up massive operating losses and they are dismayed that some of the people who helped us into this mess are still helping themselves to massive bonuses.

Back-bench MPs like me have been pressing Ministers to address this nonsense and although the Government has been very clear that there must be an end to the short-term bonus culture in the banking sector not much has happened until this week.

The Chancellor has announced that those associated with Royal Bank of Scotland losses will no longer be rewarded for their failures – in future bonuses will only be paid to reward good work and long-term value creation, which is as it should be. So RBS is undertaking a fundamental review of its remuneration policy to ensure that it is totally aligned with the creation of long term sustainable value for its customers and its shareholders.

This year is a transition period because of legal promises made to RBS employees by the previous management and the Government cannot be seen to be breaking the law but even in this transition year we have imposed tough new conditions on RBS pay.

After cutting bonuses to the lowest legally allowed level of payments will be significantly reduced and total cash spend on bonuses will be reduced by a massive 90% compared with past years.

Payments to the 88,000 junior staff in the retail bank who are on an average salary of less than £19,000 will continue and they will receive their 10% profit-share scheme which is a contractual entitlement. These payments relatively modest payments are legally unavoidable due to decisions taken by the previous management.

So this year there are no discretionary payments whatsoever and no bonuses – of any type - to anybody associated with a loss excepting the legal caveat mentioned and in future years no cash bonuses to be paid for performance in 2009 and there will be no discretionary payments at any time for anybody associated with 2008 losses.

RBS is the UK’s largest lender to small and medium sized enterprises, with over 30% market share and it’s also an important mortgage and consumer lender. Its ability to perform this function is crucial to the economy and the bank must be able to retain its best staff to do this effectively in the future so they can strive to generate future profit to help absorb recent losses. This will protect the taxpayer, and ensure the bank meets its lending commitments to support the economy.

More widely, the government's principles with respect to remuneration in all banks will be no rewards for failure and going forward, there will be no bonuses that are not founded on long-term sustainable performance in the interests of shareholders and customers – as the constituents at my Street Stall would say “and about time too !”