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South East MEP Sharon Bowles speaks out on RBS bonuses of £1.3 billion

March 12, 2010 9:10 PM

South East MEP Sharon Bowles (Lib Dem), who chairs the European Parliament's powerful Economic and Monetary Affairs Committee, has raised concerns about the ongoing bankers bonus culture, after the Royal Bank of Scotland (RBS) announced that it would hand out £1.3 billion in bonus shares to its investment bankers.

RBS was bailed out by the UK taxpayer to the tune of £54 billion, yet has announced that its investment banking arm would receive bonuses after posting profits of £8.3 billion. This is despite losses of £3.6 billion on the retail banking side, which is state-controlled. Only Stephen Hester, the Chief Executive, decided to forgo a bonus of £1.6million.

Whilst Sharon welcomes the move to remuneration in shares rather than cash, she is concerned that they still encourage risky behaviour in the banking sector.

Sharon said: "It is unacceptable that banks bailed out by the taxpayer continue to pay out bonuses when they are still reporting losses. We need to rethink remuneration policy as a whole, reduce the incentive to take excessive risk and stop rewarding making easy money."

"Moves by RBS and others to give bonuses in shares not cash is a positive indication that they have paid attention to some political demands. Even so, bonus shares can still induce risky behaviour aimed at profit at any cost."

"One way of addressing this is for bonuses to include ´subordinated debt instruments´ so bonuses would immediately be hit by downturns. While RBS did this for 2008, they have taken a disappointing step backward this year by returning to ordinary equity shares. Remuneration should ideally be far more in line with the cost of capital."