Latest pension storm shows RBS has still not made break with past

JUST when Royal Bank of Scotland most needs to put the Fred Goodwin era finally behind it, another excess from that stricken time reaches out to haunt and taunt. The annual report reveals that Gordon Pell, the outgoing deputy group chief executive, is to receive a pension of £580,000 from next month. It reflects a pension pot valued by the stricken bank at £13.5 million.

His annual pay-out actually rose by 60,000 over the past 12 months when Mr Pell was paid a salary of 934,000 – this during a periodwhenthe

bank was still making heavy losses and was 84 per cent owned by the taxpayer.

Mr Pell, who has not uttered a word of contrition or apology over the near- collapse of the bank of which he was a senior executive director, intends to take this pension in full and will thus enjoy an annual pay-out substantially higher than the 342,500 finally agreed by the disgraced former chief executive Sir Fred Goodwin.

Several points can be made in Mr Pell's defence. His pension has accrued in an RBS group scheme which was part and parcel of his employment package and one to which he is fully entitled. Second, the total also reflects pension benefits accrued over many years in his previous employment. And third, he expressed to the board well over a year ago a wish to retire but was asked by the board to stay on to help the bank through its crisis. It would be vindictive as well as illegal for a group pension to be denied to him.

However, set against these are relevant considerations. First, there has been a dramatic material adverse change in the circumstances of the RBS Group. It would be folly to argue that the group is the same institution Mr Pell joined in 2000. Indeed, its dramatic adverse change in fortunes would have been catastrophic but for the intervention of the government as new majority shareholder and the billions of pounds injected into it by the taxpayer. The bank is a fiction as a going concern but for that intervention.

And then there is the obligation of directors to act in the best interests of the bank and its ongoing business. In this context, the reputation of the bank, and in particular its relations with customers, shareholders and the wider business community, have a direct bearing on the group's ongoing business.

Mr Pell is entitled to a pension that reflects a lifetime's work in senior positions. He may well be within the letter of the law in taking the full sum. But to do so can only invite further opprobrium on a bank whose pay and pension arrangements for the former chief executive, so utterly inappropriate to the bank's collapsed circumstances, provoked widespread condemnation. That reaction made it all the more difficult for RBS to begin the process of stabilisation and recovery. Regrettably, the pay and bonus arrangements for the new chief executive still do not suggest the clean break with the past that the bank must make. These are the issues to which Mr Pell, occupying the senior position he did, should now give consideration. What is appropriate in this changed world is now quite different to an overtaken entitlement.