Antonio Polverino scores again!

There are two types of organisation that have made such huge financial rods for their backs that it looks as if they are beyond help.

 

At first, it appears that they have little in common but if you look closely, you will see that they do share two very basic elements. The first is a weak and often unskilled boardroom and the other is direct access to the public’s money. Another interesting similarity is that their personal incomes bear little relation to how they perform long-term. That has resulted in near bankruptcies within both types of organisation with the genuinely solvent ones being very much in the minority.

 

The two organisations are Association Football and Banking.

 

Over the last few years, both have committed to paying themselves outlandishly high wages and unfortunately, there is no going back. The old war cry – “We have to pay to attract the best” is beginning to sound very hollow indeed because “the best” are not necessarily getting any better but their wages continue to creep higher.

 

There is one player that you may not have heard of – his name is Brian Hartzer and he used to play for ANZ. He has just been paid a “golden hello” of over £1million to join his new outfit and he has a performance-related promise of an additional huge amount within three years.

 

There is another signing. This one is Nathan Bostock and he has negotiated roughly the equivalent of Brian’s very generous terms.

 

You may think that what they are being paid is maybe a touch excessive but last week the same outfit signed Antonio Polverino for one year. They are going to pay Polverino £7 million. He should fit-in well with latest signing Bruce Van Saun who is being paid a mere £3million.

 

Who are they going to be playing for? You may be surprised to hear that they are being hired by the Royal Bank of Scotland. The RBS is 70% owned by the taxpayer and the only reason that they are in a position to make such expensive signings is because of the Government’s recent £20 billion bail-out.

 

They were hired by new RBS boss Stephen Hester (he replaced Fred “the Shred” Goodwin) . He himself recently agreed a £9.6m pay deal which consists of a £1.2m a year basic salary, an estimated £2m in annual bonus payments and up to £6.4m through performance-linkd share awards. When RBS shares go through the 70p barrier, he will have earned all of that money.

 

Quite frankly, the RBS share price cannot fail to go higher than 70p – even if all that they do is a “slash and burn” in order to make themselves a little leaner.

 

Some politicians and fewer bankers are beginning to use the word “clawback”. So far, none have quantified what they mean but they are using the word to sugar the bitter pill of excessive wages. “Clawback” is a simple concept: “If you perform, we will pay you X but if it then transpires that your long-term performance was not as impressive as it looked initially, we will deduct Y. That will mean that your net remuneration will be X-Y.”

 

Clawback used to be quite common in the commission-paying insurance industry and in contained only two major elements: Income and Time.

 

Clawback has to be time-based. For example : “If RBS shares rise to 70p. we will pay the agreed bonus but if they fall back to below 60p within one year, you will repay 50% of the bonus.”

 

I called RBS yesterday and knowing that they did refer (briefly) to clawback in yesterday’s announcement to the Stock Exchange (see below) , I asked what form the clawback would take. No-one knew and it seems that it is going to be at “the discretion of the Board”. Their announcement refers to the Remuneration Committee and clawback “provisions”. Unwritten, i.e non-existent provisions.

 

The Gentlemen’s Club mentality persists.

 

 

Below , I have reproduced the RBS announcement to the Stock Exchange.

 

 

The Royal Bank of Scotland Group plc – Director/PDMR Shareholding

The Royal Bank of Scotland Group plc (“RBS”) announces that the following awards were made to Brian Hartzer and Nathan Bostock, both Persons Discharging Managerial Responsibility (“PDMRs”), on 17 August 2009.  These awards are designed to ensure that the Executive’s reward is based on the long-term performance of their division and the Group and therefore aligned to shareholder interests. The awards are in line with FSA principles, deferred over the long-term and subject to clawback provisions.

Brian Hartzer: As compensation for incentives forfeited on leaving his previous employer Brian Hartzer has received an award over 4,814,467 ordinary shares on a conditional basis. These awards were split in two parts:

 

 

·     Replacing those incentives due from his previous employer with no performance conditions outstanding, he has received an award over 1,988,843 ordinary shares of 25p each in RBS on a conditional basis, under The Royal Bank of Scotland Group plc 2009 Restricted Share Plan. The awards will vest between 31 October 2010 and 17 August 2011, to coincide with the original vesting dates of the awards he forfeited. 

 

·     Replacing those incentives due from his previous employer with performance conditions outstanding he has received an award over 2,825,624 ordinary shares of 25p each in RBS, on a conditional basis, under The Royal Bank of Scotland Group plc 2009 Restricted Share Plan.  The amount of this award that he may eventually receive is subject to delivery against his divisional performance targets linked to the RBS Group Strategic Plan over a three year period. The date for any vesting under the award is 17 August 2012.

 

The total value of these awards to Mr Hartzer is highly conditional and will be determined by 3 factors: (1) the successful turnaround of RBS and the divisions for which Mr Hartzer is responsible over the next 3 years; (2) The level of success in doing so and (3) the price of RBS ordinary shares if and to the extent the awards vest.

Nathan Bostock: As part of his total compensation at RBS he has received awards on a conditional basis under the RBS long term incentive plans in line with those awarded to other Executive Committee members earlier this year:

·     Share options over 2,337,663 ordinary shares of 25p each in RBS on a conditional basis, under The Royal Bank of Scotland Group plc 2007 Executive Share Option Plan. The option price is £0.462. The amount of this award that he may eventually receive is subject to delivery against his divisional performance targets linked to the RBS Group Strategic Plan over a three year period. The date for any vesting under the award is 17 August 2012 and the exercise period will be from 17 August 2012 to 16 August 2019.

·    An award over 1,327,434 ordinary shares of 25p each in RBS, on a conditional basis, granted under The Royal Bank of Scotland Group plc 2001 Medium-term Performance Plan. The award is in the form of a nil-cost share option. The amount of this award that he may eventually receive is subject to delivery against his divisional performance targets linked to the RBS Group Strategic Plan over a three year period. The date for any vesting under the award is 17 August 2012 and the exercise period will be from 17 August 2012 to 16 August 2019.

 

The total value of these awards to Mr Bostock is highly conditional and will be determined by 3 factors: (1) the successful turnaround of RBS and the divisions for which Mr Bostock is responsible over the next 3 years; (2) The level of success in doing so and (3) the price of RBS ordinary shares if and to the extent the awards vest.

All of the above awards are subject to clawback provisions which allow the Remuneration Committee to consider a range of factors, such as whether results have been achieved with excessive risk, when determining the vesting outcome.

 

(The information above was provided by RNS, the company news service from the London Stock Exchange)