Yes, pay bankers well

Reading the business pages in the past few weeks, one could be forgiven for thinking that we were still in the midst of an economic boom and that all the talk of credit crunches, collapsing banks and the like had just been a bad dream.

The sense of déjà vu centres around the news that Stephen Hester, chief executive of The Royal Bank of Scotland (RBS), one of the banks now effectively controlled by you and me, is to be awarded a remuneration package of just under £10m. This eye-watering amount has led to politicians, trade unionists and journalists all joining in a chorus of strident outrage. It is quite comforting these days to pour scorn on bankers and their pay packages. After all, didn’t they get us in this mess in the first place?

Whilst the criticism is understandable, it is too easy a response. Clearly, it is important that we learn the lessons of the financial crisis and hold to account those responsible for it, but there is little point in making matters worse by failing properly to incentivise those who have been tasked with the role of getting those banks which are in some form of public ownership back to good health.

In order for Stephen Hester to earn his full package, RBS’s shares must double in the next five years from their current level of around 35p to 70p. This will not be straightforward given that we do not yet appear to have reached the bottom of the recession and many economists fear that it will be a long time before we start to see real growth again. There is also the small matter of sorting out the millions of toxic loans sitting on RBS’s balance sheet. What we need is someone who has the ability to grapple with these issues and the quicker he or she does so, the better.

I have no idea whether Stephen Hester is the right man to turn RBS around but, if he is, he will deserve every penny of his package.

Jonathan Morris is a partner at the international law firm Berwin Leighton Paisner LLP

    Last updated: 4:26pm, July 8 2009