Sir Fred Goodwin, the disgraced and retired former chairman of Royal Bank of Scotland, was discovered to be drawing a pension of around £693,000 a year (around US$981,000 and Sg$1,517,678) in spite of the fact that his decisions while chairman (especially RBS's purchase of a goodly chunk of the Dutch bank ABN-AMRO, which has added billions of toxic assets to the bank's balance sheet) have brought the bank to the brink of total nationalisation by the British government.
There has been much upset about this in the
British newspapers, radio, and television—the article under the link is representative and going to the
BBC news website will reveal a pretty strong selection of complaints about it.
The average Brit on the street feels, in general, that high salaries are a personal affront to every working stiff in the country and their cousins, their uncles, and their aunts too. There is a dimly-perceived notion that any large salary is undeserved. This would not stop them from taking such a salary would it be offered to them (they all buy lottery tickets because "It may be them!"), but in their gut they know it won't happen.
I don't believe that there has been any equivalent movement or sentiment in the United States for depriving the disgraced former bosses of Lehman Brothers or Merrill Lynch of their golden goodbyes and pensions. And this encapsulates a great gulf between the UK and the US.
It is certainly true that much of the difficulty that RBS finds itself in can be laid at the door of its Board of Directors, CEO, and Chairman of the time. None of these people (I believe) is still connected with the bank, and rightly so. Those who bring about such a calamity should not continue to run the institution.
It is also true that the huge pot of money given by RBS to Sir Fred toward his pension (to be added to another huge pot which he brought over from previous employment, and which must not be mentioned in this account) has given him the ability to retire at age 50 and will give him a very wealthy lifestyle for the rest of his life. The part of this contributed by RBS is undeserved and is a reward for failure.
What bothers me about this is the fact that, in law, it would be extremely difficult if not impossible to force Sir Fred to pay back any of the money RBS paid into his pension. There is a contractual obligation that has been formed between RBS and Sir Fred in which the bank decided to pay him this money when he left. To force Sir Fred to pay it back it would have to be proven that he deceived the bank in some way into paying him the money. When they entered into the agreement, some of the money was contractual and some of it was discretionary from the bank to compensate Sir Fred for the price of shares and salary he forwent by leaving. The board did not have to do this, but they did, signed the documents, and it was done.
At this point, I believe that the government is trying desperately to whip up popular sentiment against Sir Fred in order to try to shame him into giving some of the money back. The reason for this is that the government is aware of the fact that it will not be able to legally deprive him of one penny of the money but is eager to give the opposite impression. When the inevitable
dénouement arrives, and the government announces, sadly, that its hands are tied, no one will blame it for the result.
This is all incredibly dishonest, on all sides.
Yes, I think that Sir Fred is a pretty bad (as well as unlucky) businessman—had the ABN-AMRO deal been done five years before, he would probably have been hailed as a hero of the boardroom. I also think that his remuneration is far larger than he deserves.
However, I additionally think that abrogating contracts retrospectively simply because of the baying of the mob is wrong. If there was some illegality around the negotiating or signing of the contract then, yes, go ahead and sue for the money and let the courts decide. However, if everything was entered into in good faith and according to law, not only is there nothing that can be done about it, there is nothing that should be done about it. The rule of law is the bedrock which keeps civil society from disintegration. It applies to the lowest as well as the highest. And depending on the law of contracts to govern relationships between individuals and companies is important not only for Sir Fred's ability to keep his pension, but for our ability to keep our own pensions (as small as they may be).
I do believe that those who negotiated for the bank may be at fault, and I would support investigating whether their activities were legal and prudent, and perhaps getting them, collectively or individually, to reimburse the bank. This would come out of the Directors and Officers insurance policy that RBS (should have) had at the time. It is also possible that, after investigation, it may be evident that pursuing a suit against the directors will cost more than RBS will get back were the suit to succeed.
If I were Sir Fred, I'd decamp for the South of France with my pension pot and never return. The weather's much more congenial down there and the mob in London will be far, far away.
Once he's out of the picture, some way of decoupling remuneration from entitlement ought to be sought. The 1980's John Houseman ads (one of which is embedded below) ended with the tag line "We make money the old-fashioned way. We
earn it." If a way is found to ensure that executives
earn their remuneration, something tangibly good will have come out of this unholy mess.
