It’s His Money Now

(This kerfuffle may have passed my US readers by; basically, Sir Fred Goodwin used to be chief executive of the Royal Bank of Scotland, our worst-performing bank. He got a big pension payoff, £650,000 a year, and now politicians and the government – which has since come to own 70% of RBS – are upset and want the money back.) From BBC News:

“Nobody disputes that Sir Fred should be deprived of his pension,” said [Liberal Democrat] Treasury spokesman Vince Cable.

“The only issue is what is practical.”

Well, Vince, I dispute it. They probably shouldn’t have given it to him but, now that he has it, it’s his. A cornerstone of dealing with others justly and fairly is that when you make a deal and give your word, you stick to it, even if it turns out to be a bad deal.

If the UK Government had put half as much energy into saving waste in other areas that they’ve put into trying to get back the £16m of Fred Goodwin’s pension, the country would be a lot better off. This synthetic anger serves only to distract the attention of the public from the real problems.

7 thoughts on “It’s His Money Now

  1. While I am possibly likewise disappointed in the lack of attention for more important things these days, I disagree with your argument that they have the right to reclaim money.

    Considering tax returns and so on, we are regularly in the business of paying more or receiving back some of our payment if it turns out the original payment was made based on things then perceived as fact, which turned out not to be so. So if I misreport my income, or the government makes miscalculations about the percentage of tax I should pay, the difference is settled because it is recognized a mistake (deliberate or not) has been made.

    Similarly, I think people recognize that in this case, a mistake has been made. In particular, Sir Fred doesn’t seem to have done his work with the diligence and skill originally presumed, and therefore one may argue that he does not deserve all of this money.

  2. I understand your point, but when he’s presided over a bank which has made such fundamental mistakes I can’t see how it’s just in any way that he receives such a reward. Let’s not forget that RBS was the UK’s second largest, and Europe’s third largest bank. And it’s fallen to its knees in no small part because of ‘Sir’ Fred’s actions. Now, for me it’s not about the money itself (it’s a drop in the ocean as far as public money goes), but the principal. The upper echelon on the bank must be held accountable for allowing the bank to get into the state it is in. And that should go for all banks which have such a large exposure. It’s the responsibility of the head of the bank to ensure it is stable and successful – that means at times it must err away from short term gains with a maximum risk in favour of less risky and less favourable returns.

    I understand your principal that we can’t go back on what we’ve agreed when we have agreed it. And I agree that someone somewhere made a very bad choice in agreeing it. But surely the principal of responsibility must also come into play here. If you run a company into the ground you must fare the same as its taxpayers. If they lose their investment, why should the head of the company not too?

    I have a hard time believing that there are no laws that deal with corporate negligence in some form that could be applied to Fred Goodwin. (Because the takeover of ABN Amro (which put RBS at such exposure) *was* reckless and negligent.)

  3. I’m inclined to agree. The deal may have gone sour – but in essence it seems to have been a payoof to get him to leave. Now he has left you can’t retract the payoff. Would people rather he had recieved the £1.6m upfront for his termination (I think it was a years salary).
    Yes, he could have been sacked – but that would have been open to appeal in which case he’d have still got his money and the bank would have had to foot a large legal bill too.
    The bank endevoured to deal with this quietly – the government are trying to backtrack, and have ended up with egg on their face (IMHO)

  4. I understand your point, but when he’s presided over a bank which has made such fundamental mistakes I can’t see how it’s just in any way that he receives such a reward. Let’s not forget that RBS was the UK’s second largest, and Europe’s third largest bank. And it’s fallen to its knees in no small part because of ‘Sir’ Fred’s actions. Now, for me it’s not about the money itself (it’s a drop in the ocean as far as public money goes), but the principal. The upper echelon on the bank must be held accountable for allowing the bank to get into the state it is in. And that should go for all banks which have such a large exposure. It’s the responsibility of the head of the bank to ensure it is stable and successful – that means at times it must err away from short term gains with a maximum risk in favour of less risky and less favourable returns.

    I understand your principal that we can’t go back on what we’ve agreed when we have agreed it. And I agree that someone somewhere made a very bad choice in agreeing it. But surely the principal of responsibility must also come into play here. If you run a company into the ground you must fare the same as its taxpayers. If they lose their investment, why should the head of the company not too?

    I have a hard time believing that there are no laws that deal with corporate negligence in some form that could be applied to Fred Goodwin. (Because the takeover of ABN Amro (which put RBS at such exposure) *was* reckless and negligent.)

  5. Gijs: the original deal with tax is that if there turns out to be a mistake, then there is a mechanism for adjusting the amount paid. It’s agreed up front that this is the case. There was no such agreement here.

    Sir Fred doesn’t seem to have done his work with the diligence and skill originally presumed

    Well either they didn’t look, which would be government negligence, or it wasn’t possible to know, in which case my point stands – you can’t go back and change the deal later unilaterally, even if it turns out to have been bad for you. Lloyds can’t un-take-over Halifax, etc. etc.

    Also, it would set a very worrying precedent – a point brought out by this blog post.

    Alan said: I can’t see how it’s just in any way that he receives such a reward

    If I win the lottery, is it just that I receive the money? I don’t deserve it in a moral sense – I’m no better than the next guy. But I entered a contest where the deal was that I bought a ticket, and if my numbers came up, I won. Similarly, Sir Fred and the bank made a deal that he would leave, and they’d pay his pension. Going back on it now is like the lottery people saying “actually, you don’t deserve that money – you can’t have it”. “Deserve” or “not deserve” isn’t the point. Lots of people get things they don’t deserve.

  6. Synthetic anger indeed.

    The ones that frustrate me the most are the corporate boards, the ones who hired and signed these CEO contracts. If the CEO candidate was unwilling to sign a contract with some performance based pay mechanism, find someone else. Obviously, most of these CEOs were not the rock starts they thought they were.

  7. I understand your point, but when he’s presided over a bank which has made such fundamental mistakes I can’t see how it’s just in any way that he receives such a reward. Let’s not forget that RBS was the UK’s second largest, and Europe’s third largest bank. And it’s fallen to its knees in no small part because of ‘Sir’ Fred’s actions. Now, for me it’s not about the money itself (it’s a drop in the ocean as far as public money goes), but the principal. The upper echelon on the bank must be held accountable for allowing the bank to get into the state it is in. And that should go for all banks which have such a large exposure. It’s the responsibility of the head of the bank to ensure it is stable and successful – that means at times it must err away from short term gains with a maximum risk in favour of less risky and less favourable returns.

    I understand your principal that we can’t go back on what we’ve agreed when we have agreed it. And I agree that someone somewhere made a very bad choice in agreeing it. But surely the principal of responsibility must also come into play here. If you run a company into the ground you must fare the same as its taxpayers. If they lose their investment, why should the head of the company not too?

    I have a hard time believing that there are no laws that deal with corporate negligence in some form that could be applied to Fred Goodwin. (Because the takeover of ABN Amro (which put RBS at such exposure) *was* reckless and negligent.)