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Stephen Hester, RBS CEO, Praised By Politicians, Union Leaders After Refusing Bonus

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LONDON — Britain's leaders, politicians and union leaders on Monday welcomed the decision by the chief executive of nationalized Royal Bank of Scotland to refuse, under huge media pressure, a million-pound ($1.6 million) bonus.

The bank, which is 82 percent-owned by taxpayers, announced Sunday that Stephen Hester would not accept a bonus of 3.6 million shares after calls to do so grew from politicians, labor unions and the media.

The bonus would have been on top of Hester's annual salary of 1.2 million pounds for leading the restructuring of RBS, which the government spent 45 billion pounds to rescue and nationalize during the global credit crunch.

Prime Minister David Cameron urged the bank to show restraint in its bonus payments to Hester's senior colleagues in the coming weeks, and suggested it do a better job to explain how executive pay is linked to performance.

"They have got to have proper regard in terms of restraint when they have had so much money from the taxpayer and they have made so many mistakes in the past," Cameron told reporters in Brussels, where he was attending a summit of European leaders.

Cameron's comments came after Foreign Secretary William Hague said Hester's decision was "sensible and welcome," while David Fleming, national officer of the Unite union, called it "better late than never."

The opposition Labour Party had been planning to force a vote in the House of Commons on a motion demanding that Hester be stripped of the bonus.

"I don't think this can be just a one-off episode, because if we don't deal with this systematically, if we don't deal with the issue of bankers' bonuses in a proper way, this kind of thing is just going to re-occur," said Labour Party leader Ed Miliband.

He said banks "need real change in the boardroom and new rules and real change from the government to, say, tax the bankers' bonuses until we see the change in behavior that we need."

The pressure on Hester to forego his bonus, however, raised doubts on the bank's longer-term ability to retain high-level executives.

"The ongoing politicization of contractually owed bonuses can only serve to increase the risk that management will ultimately decide to leave, severely hampering the prospects of a further recovery," said Gary Goodwood, analyst at Shore Capital Stockbrokers.

"This is one of a number of reasons why we think it is still too early to take a positive stance on Royal Bank of Scotland shares."

Bruce Packard at Seymour Pierce took a contrary view, saying any move to "more clearly align incentives with actual share price performance – RBS shares fell by a third in the last year – ought to be taken as good news for owners of the business."

The government will only recover its investment in RBS if the company's stock rises to around 50 pence. On Monday, it was down 2.4 percent at 27 pence.

(This version CORRECTS Corrects dollar conversion in 1st paragraph to million instead of billion.)

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