January 30th, 2012

Today’s headline in Britain about the CEO’s bonus at the Royal Bank of Scotland, rescued from collapse in 2008 and now owned 83% by the British government:

Mr Hester, the chief executive of Royal Bank of Scotland, has bowed to mounting public anger and agreed to give up shares worth almost £970,000.

Naturally Stephen Hester’s decision to live on his paltry pay of £1.2m has nothing at all to do with saving the Cameron-Clegg government from embarrassment and possible humiliation in the Commons. Where are the Murdochs’ phone hackers when you need them?

If the bonus was necessary to get Mr. Hester to do a proper job, he will now underperform. Logically he must now be sacked.

In another glimpse into the entitlement world of the banksters, the Sunday Times (yesterday, p.25, paywall) quotes the chairman of a rival bank sounding off indignantly (my italics):

And if he goes, how much would they have to pay the next person? It would either be somebody decent, who will want £10m upfront because they won’t trust the government, or they’ll get the chief executive of an NHS trust, pay them £100,000, and it will be a multi-billion-pound disaster.

Never mind that the chief executives of NHS trusts get basic pay of around £150,000, not £100,000, plus modest performance bonuses by City standards sometimes reaching £20,000: similar to the pay of senior NHS consultants. What’s astonishing is the top banker’s lack of imagination about the rest of the world. Running a big hospital is a order of magnitude more complex than running a bank, even a big and troubled one. You have thousands of high-technology and intrinsically dangerous products (medical procedures) as against a bank’s dozen or so; the key staff – the doctors – are prickly and highly specialised experts, with entrenched professional autonomy; and the consequences of screwing up are deaths, not paper losses. Would you trust Mr. Hester to run a teaching hospital?

6 Responses to “News from the 0.1%”

  1. Ebenezer Scrooge says:

    Gotta disagree with your reasoning here, albeit perhaps not your conclusion. Big hospitals resemble big banks much more than you think–except big banks are worse.

    In both cases, the place really isn’t run by the CEO. Big hospitals are run by (or at least for the benefit of) the senior doctors, much the same way that big universities are run by (or at least for the benefit of) the senior faculty. (We’ll ignore the football team.) Similarly, big banks are run by and for the benefit of the business unit heads and their top henchmen. The “bank” is a mere franchisor of its reputation, capital, and operations.

    There is only one difference. Senior doctors and professors, although doubtless self-interested, are constrained by craft values. This means that the patients and students benefit from hospitals and universities. There are no craft values in investment banks, and business unit heads control the accounting. It’s much tougher for a bank CEO to exercise authority in this context, although admittedly hard enough for hospitals and universities.

    I’m not sure I disagree with your conclusion. Maybe being a bank CEO is so hard it is effectively impossible. In which case, any square-jawed character actor who can appropriately reassure shareholders and regulators would do.

  2. J. Michael Neal says:

    Surely there is an Indian bank president willing to do the job for a tenth of the cost.

  3. BroD says:

    “[Mr. Hester]will now underperform.”


    • I make no claim that Mr. Hester has been doing a bad job reversing the legacy of the truly catastrophic Sir (!) Fred Goodwin, though my son, a customer, would disagree. The RBS is SFIK doing OK on profits and financial stability, not so well on keeping credit going to small British firms. The question is whether the going rate for ordinary banking competence is really £2m a year.

  4. John G says:

    One of the reasons that a big hospital is harder to run is that the measure of performance is more complex. So long as the bank turns a profit, or a profit comparable to its competitors, it is OK. How to measure whether a hospital has succeeded? Patient outcomes? How to measure them? Whose outcomes count? and lots more stakeholders: minister of health, medical and other health professions, patient advocates, plain ordinary patients, journalists, researchers … etc.

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