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RBS Executive in Line for $6.1 Million Bonus

Megan Murphy, Patrick Jenkins and George Parker, Financial Times

The head of Royal Bank of Scotland’s embattled investment bank is in line to receive a special bonus this year of more than $6.1 million, an award that will be contentious given the government’s vow to crack down on excessive executive pay.

The Royal Bank of Scotland Headquarters
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John Hourican, chief executive of RBS’s global banking and markets division, was awarded almost 29 million shares and options in 2009, as part of a long-term initiative to restructure the group following its disastrous tie-up with Dutch lender ABN Amro.

The disclosure that the awards will vest in April threatens to inflame the row over bankers’ bonuses and perceived reward for failure in the City, as RBS prepares to dramatically scale back its investment bank. This year’s bonus round is set to be the most contentious since the financial crisis.

RBS , which is 83 percent owned by the UK taxpayer, declined to comment on Mr Hourican’s 2009 bonus package. However, filings show that he was awarded 21,276,596 shares and a further 7,446,809 options in April 2009, subject to meeting unspecified performance targets over a three-year period.

At Friday’s closing price of 20.5 pence, Mr Hourican’s share award would be worth £4.4 million ($6.78 million) if he has met all the prescribed targets. The options, with an exercise price of 28.2 pence, are currently valueless, although the stock traded at that price in early August.

David Cameron, the prime minister, on Sunday promised to introduce legislation in this spring’s Queen’s Speech to target the “market failure” that has led to what he called “excessive growth” in executive pay.

Mr Cameron said there would be a new regime of transparency and proposed that shareholders should be given binding — rather than advisory — votes on remuneration packages, as well as having to approve dismissal packages.

While the government has repeatedly rebuffed calls to reintroduce the controversial 50 percent “supertax” on bankers’ bonuses that was put in to place by the previous Labour government, it has been made clear to senior UK bank executives that they will be expected to use profits to bolster capital, rather than pay lavish bonuses.

After three years of bruising political battles with the government over the size of its bonus pool, senior executives at RBS concede it will be much more difficult this year to persuade politicians and the public that it needs to pay competitive packages to retain senior staff, such as Mr Hourican and group chief executive Stephen Hester.

Within Mr Hourican’s global banking and markets division, as many as 10,000 jobs are at risk from a radical restructuring that will see the business nearly halved in size over the next several years, people familiar with the situation said.

Mr Hourican was awarded an all-share bonus of £2.5m ($3.85 million) last year, at the lower range of the industry.

It is still undecided what will happen to Mr Hourican once the task of shrinking the investment bank has been accomplished. One person close to him said he was being lined up for another senior job at RBS, possibly as the man who should head the task of carving out the new ring-fenced retail and small business bank from the rest of the group, as RBS moves to comply with government-backed proposals from the Independent Commission on Banking to de-risk Britain’s banks.