Analysis: Royal Bank of Scotland and bankers' bonuses

Royal Bank of Scotland chief executive Stephen Hester might have waived his bonus in an attempt to deflect public anger about bankers' pay but he spelt out today why he wished he could make larger payments to his investment bankers. He told BBC Radio 4's Today programme that RBS had lost out because of the pay policies imposed by the government. "We've had a small experiment in this respect ... some of our best-performing people have been leaving in their thousands," he said. "The people who left us last year, I believe, would have increased our profits by up to a billion pounds beyond the ones that we've got." The disconnection between how bankers can be entitled to bonuses when their banks are making losses and being propped by billions of taxpayers' money can be difficult for banks to justify. Hester is running a bank that reported £3.6bn of losses and needs £54bn of investment by the taxpayer to stay afloat. Eric Daniels, his counterpart at Lloyds Banking Group, is expected to admit tomorrow that his bank, in which the taxpayer has a stake of more than 40%, is making losses of as much as £7bn. Even so, Lloyds was going to award him a £2.3m bonus – which he has turned down. The precise sum that would have been offered to Hester has not been confirmed but it is understood that it would have been between £1.6m and £2.4m. Chairman Sir Philip Hampton stressed his chief executive has "significantly outperformed" the targets he had been set and would have been awarded "a bonus commensurate with that view". One of the targets taken into consideration for his bonus was the ability to meet lending targets set by the government – although the bank admitted today that it has not reached these goals because of the speed with which loans are being repaid . While Hester and Daniels run banks in which the taxpayer has direct stakes, purists argue that bankers should not be receiving bonuses while the taxpayer is supporting the entire banking system by pumping money into the financial markets to keep credit flowing. Hence the trend-setting moves by Barclays duo John Varley and Bob Diamond to waive their bonuses for 2009 last week even when the bank reported a record £11.6bn profit. HSBC's chief executive Michael Geoghegan, who has moved to Hong Kong and is in line for a pay rise of more than 40%, is now expected to refuse any bonus and turn down any pay rise even though the bank has taken no money directly. Peter Sands, his counterpart at Standard Chartered, may also feel the heat. But for all the focus on the boardroom, it is still very difficult to gain information about the size of individual bonuses paid inside the banks, which can make executive pay look small. HSBC will provide a rare glimpse on Monday when its annual report will reveal the pay scales of its highest earners, although will not reveal their identities unless they sit in the boardroom.