THE newly appointed chief executive of Royal Bank of Scotland has decided to take no annual bonus until 2015 to avoid the “pay drama” that dogged his predecessors.
Ross McEwan, a New Zealander who joined RBS’s retail arm last year, will be on a basic salary of £1 million – compared with the £1.2m paid to outgoing chief executive Stephen Hester – plus £350,000 in cash each year in lieu of a pension. Mr McEwan, 56, who was reportedly paid a £3.2m “golden hello” when he joined RBS last year, has asked to defer bonus awards under his current role until 2017 and to forgo an annual bonus as chief executive for 2013 and 2014.
Announcing his appointment on Friday, RBS group chairman Sir Philip Hampton said Mr McEwan wanted “as little pay drama as possible” but added: “Ross certainly wanted to start with a gesture.”
Sir Philip said he was “delighted” with the appointment and that Mr McEwan, who takes up his new role on 1 October, “will do a great job”. Among his priorities will be completing the bank’s restructuring to make it fit for a return to the private sector, a move Mr Hester said could happen by the end of next year.
Confirmation of the appointment came as RBS, which is 81 per cent owned by the taxpayer, posted a £1.4 billion pre-tax profit for the first six months of this year, after a loss of £1.7bn for the same period in 2012.
During his five years at the helm, Mr Hester faced criticism over his salary and bonuses at a time when public money was keeping the institution afloat. He said his successor would face many challenges, including political scrutiny, but added: “It’s a big job that will stretch Ross in lots of ways, which I am sure he will respond to well.”
Chancellor George Osborne welcomed Mr McEwan’s appointment and said he was impressed with his “vision of RBS as a strong, UK-centred corporate bank that is focused on supporting the British economy”.
Mr Osborne went on: “He’ll provide the leadership RBS needs as the bank puts the mistakes of the past behind it, and the government seeks to get the best value for the taxpayer.”
Mr McEwan joined RBS from Commonwealth Bank of Australia, and his appointment to the top job is seen as a politically acceptable move to indicate a shift in emphasis towards RBS’s retail and corporate banking business, and away from its investment banking arm.
Sir Philip said there had been no pressure from the Treasury or UK Financial Investments –which manages taxpayer stakes in banks – to appoint a certain type of candidate. He added that Mr McEwan was the only person to have been offered the job.
But he admitted the global search for a new chief executive had been limited by the decision of the RBS board not to pay a big “buyout” package to any external candidate. “It would have caused political controversy, particularly when some top individuals would cost up to $30m,” he said.
This year, Mr McEwan told UK banking analysts: “Having come into this market six months ago, I’ve been quite surprised at how bad this industry is from a retail banking perspective. I’d even go as far as to say that there’s not a good retail bank, and our job is to create that.”
Yesterday, Mr Hester said it was “symbolic” that RBS had registered its first interim pre-tax profit in the fifth year of what he always said would be a three- to five-year turnaround.
He hoped improved trading numbers would provide a “flourish for privatisation”. Asked about his own plans, Mr Hester said a holiday was first on the agenda, but analysts expect him to return to an executive job at some stage.
Sir Philip said RBS was continuing to co-operate with the Treasury in an investigation recommended by the Parliamentary Commission on Banking Standards as to whether it should be split into “good” and “bad” banks, with the latter made up of its toxic assets. He said a recommendation should be made this autumn.
Sir Philip again defended the importance of RBS having an investment banking arm, despite a further profits slump at the radically pruned division to £371m from £1bn. He said RBS was a corporate banker and it needed a markets business to service its big international clients.
But he added: “We don’t want a markets business any bigger than it needs to be. And it needs to sit with the rest of the bank rather than sitting by itself.”
RBS took an extra £185m hit to compensate customers for the misselling of payment protection insurance, taking its total bill to £2.4bn.
Last night, a Scottish Government spokesman said: “Any decisions regarding the future of RBS must be based on achieving financial stability and maximising value for taxpayers’ investment, not the short-term pursuit of profit or political expediency.
“The Scottish Government engages regularly with RBS to maximise headquarter functions and employment in Scotland. We look forward to continuing that discussion under the leadership of the new chief executive.”