In the back of Private Eye is the reliably eye-opening column In The City, which uncovers dodgy goings-on in the financial markets.
The unnamed author frequently develops stories that have been in the papers. This week’s column looks at the warped reasoning behind Sir Fred Goodwin’s £693,000 a year pension (I can’t provide a link sadly as Private Eye doesn’t really do online).
In The City reminds us that Fred the Shred’s stunning pension was topped up as recently as October last year by £8m, despite the fact that RBS was already facing near bankruptcy. Why did RBS bosses consider it acceptable to heap extra reward on such an unsuccessful chief exec?
This bizarre decision says a lot about banking culture. In The City argues that the increased pension was effectively hush money. RBS had sufficient grounds to sack Goodwin last year if they had wanted to do so, in which case Goodwin would have faced a reduced pension or no pension at all. In The City explains why RBS decided not to give him the boot –
(Sacking) could have been an option. But only if the RBS board were prepared to see him in court and wash all their dirty boardroom linen in public. Negligence or breach of company policy when approved by the board… would be hard to prove.
Which is why there are always rewards for failure. Contracts assume competence, so incompetence could be “due cause” to dismiss. But companies prefer chief executives to go quietly with a Goodwin-style gag, which is cheap at the price, say their lawyers.
Why sack Goodwin when you run the risk of placing your boardroom decisions in the public domain? Heaven forbid! Best to keep such valuable trade secrets under wraps.
Happily for RBS, pension settlements are usually legally ‘bombproof’, says In The City. Indeed, an RBS report in February last year stated that Goodwin was perfectly entitled to “enhanced benefits” on early retirement. The chances of a successful legal challenge against RBS look pretty bleak.
Goodwin’s enhanced pension hints at a wider culture of deception within the City.
Photo by Oolong, used under Creative Commons.
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