Royal Bank of Scotland CEO Stephen Hester’s decision late on January 29 to forgo a £1 million ($1.3 million) bonus following intense political pressure offers only short-term relief for the bank. The state-owned institution is set to reveal the size of its investment banking bonus pool next month, as well as details of other pay awards to senior executives, all of which is sure to generate fresh controversy and make RBS a less attractive place to work. The government, meanwhile, is bowing to public anger about well-paid bankers and on January 31 stripped disgraced former RBS chief executive Fred Goodwin of his knighthood.

Senior bankers at RBS are privately furious that RBS’s remuneration policies have become a political issue since the government’s 82 percent shareholding is typically managed — at arm’s length — by U.K. Financial Investments, a Treasury agency run by ex–investment bankers. The understanding had been that RBS would be run as a normally listed bank in preparation for full privatization. ....

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