Bonuses

Should Stephen Hester have his bonus or not? He was given a contract which entitles him to one and this contract is still seemingly in force. He is therefore entitled to one and the one he has been given only becomes cashable in 2014 and, being in the form of shares, the amount he can cash it in for will depend on the value of the shares at that time. Will he have to pay tax on the value of the shares at the time he receives the right to the shares or when he cashes them in? This could make a big difference to him. I have to say I have some sympathy for him. He was not responsible for the RBS disaster but has taken on a job for which he receives nothing but brickbats at what I am told is a salary that is less than anyone else would do the job for and certainly less than he would be paid if he were to leave for another post. Its competitors seem to think that RBS will have to revert to a commercial bank as it has no future competing with the likes of Barclays. The reason given to me for this view is that Sir Fred rashly gave all his officers above a certain pay grade final salary pension entitlements making it economically advantageous for these officers to remain in situ thus causing what I understand is called bed blocking. The effect of bed blocking will ensure that no bright and ambitious youngsters are going to even attempt to push their way through to  a position in the bank that they would otherwise have aspired to. They will go to work for banks where there is a more fluid career path. When I started off as a solicitor all those years ago a bonus was a rare and uncertain thing. You had to do something exceptional to get other than a tenner at Christmas and the firm you worked for had to have had a good year as well. Bonuses have now become something else entirely. They are more like deferred salary payments and certainly the employment contracts of investment bankers I occasionally advised on made it very clear that a bonus was always going to be paid - they only uncertainty was the amount although often a minimum amount was stipulated. Charles Moore in the Telegraph today has a good piece on Hester's bonus and the Coalition's honour here.