Double Pay Deal For Bank Bosses
Tax-payer funded bank doubled wages
A whistleblower came forward during the height of the Northern Rock scandal when the bank had been bailed out by tax-payers.
Our source wanted to expose how middle managers were using this public money to double their wages through bonuses.
We set up an investigation with the Mail on Sunday newspaper which ran the story on its front page.
Double pay deal for Rock bosses
Last night shareholders and customers condemned the decision to ‘reward’ the people involved in the biggest banking crisis in modern British history with annual payouts of up to £100,000 each.
They accused the recipients, who range from senior managers to management board directors, of siphoning money out of the bank as it hovers on the brink of collapse.
The confidential payouts, which total £2.3m for this month alone and were known about by the Treasury, are detailed in company documents seen by The Mail on Sunday. The disclosure will put further pressure on the bank’s management as it prepares for an emergency shareholder meeting on Tuesday.
It will also add to the Government’s political difficulties over the issue. As Chancellor Alistair Darling battles to avoid the ‘nuclear option’ of nationalising Northern Rock, City experts are warning that Britain’s international reputation for economic management is being seriously damaged.
In a letter to senior staff on December 20, chief executive Andy Kuipers said the bank’s board of directors had agreed ‘an enhanced remuneration package’ for employees deemed ‘essential to our continuing excellent operational performance’.
He said they will receive a bonus amounting to a quarter of their gross annual salary every three months – effectively doubling their pay if they are paid the bonus for a year. The arrangement can be withdrawn only with three months’ written notice, so the employees are guaranteed at least six months’ extra pay.
The payouts are capped at £25,000 per quarter and take effect from this month. The formula means that some staff – those earning £100,000 or less – could double their pay.
Mr Kuipers, who replaced Adam Applegarth as chief executive last month, stressed that the arrangement ‘will not be offered to the generality of staff and, as such, must remain absolutely confidential to yourself and not be discussed with others.
‘If you do discuss the existence of this bonus to any third party then you will forfeit your entitlement.’
So far, 173 staff out of a workforce of 6,000 have been awarded bonuses. These include £19,500 to Derek Robinson, the head of credit investments, and three management board directors who are said to have reported directly to Mr Applegarth – Michael Smith, Lesley Sewell and Nigel Mushens. They each received the maximum £25,000.
Carl Flinn, who took over from treasurer Keith Currie in October, also received a £25,000 bonus, as did Paul Rippon, who has the unfortunate title of operational director (credit risk). Last night Brian Giles, Northern Rock’s communications director – who also received £25,000 – said: ‘We never comment on confidential internal matters.’ Later, he called back to say: ‘As part of the company’s stabilisation process, it has implemented a retention policy for a number of staff with particular technical or specialist skills.
‘They are deemed essential to the immediate and ongoing stability and operational effectiveness of the company. The board considers this to be responsible and prudent business practice, particularly given our current situation, and is a matter on which the tripartite authorities have been fully appraised.’
The tripartite authority is the name given to the regulatory powers of the Treasury, the Bank of England and the Financial Services Authority when used in unison. The FSA regulates the providers of financial services. Mr Giles added: ‘The retention scheme was implemented by the board before the appointment of Andy Kuipers as chief executive.’
Asked to confirm that a system which paid a bonus of a quarter of their salary every three months allowed workers earning £100,000 or less to double their salary, Mr Giles said: ‘I will not be going into the confidential details of the package.’
Philip Hammond, Shadow Chief Secretary to the Treasury, said: ‘This desperate move to hang on to key staff adds yet more to the mounting cost of Alistair Darling’s dithering and delay over Northern Rock. Every pound spent in this way is a pound of taxpayers’ money less likely to be repaid.’
The turmoil began in September when Northern Rock was forced to borrow £3bn from the Bank of England after running out of liquidity as a result of its exposure to high-risk sub-prime mortgages in America.
The news led to panic among its customers, and the following day people queued around the block to withdraw their savings, taking out more than £1bn in a day.
As the panic spread, and with the share price in freefall, Mr Darling said the Government would guarantee all deposits held at the bank. The Rock owes £26bn to taxpayers, and that could rise closer to £ 50bn if a buyer cannot be found.
Yesterday, a Northern Rock employee who missed out on the bonuses said attempts by the company to keep the payments quiet was an attempt to ‘buy people’s silence’. He said: ‘It has really damaged morale on the ground floor. Since the trouble started they have cut loads of short-term contracts and ended placements – but they are paying out these sums to the top people.
‘A friend who has just had his contract stopped could have been paid for six months out of just one of his boss’s bonuses. It is robbing the poor to pay the rich, and the fact they have made such a clumsy attempt to keep it quiet shows how guilty they are.’
The Chancellor has set a deadline of the end of February for the withdrawal of Government support for the bank. But hopes that the private sector would come to the rescue have receded after a cooling of interest from Sir Richard Branson’s Virgin group and other potential bidders.
The extraordinary meeting of shareholders on Tuesday has been called by two hedge funds, RAB Capital and SRM, which between them own almost 18 per cent of Northern Rock. With fears growing that Mr Darling will be forced to liquidate Northern Rock, nationalise it and sell off the assets, the investors are demanding that the Government give them a say in the bank’s fate.
Ministers’ embarrassment has been compounded by a leaked memo from Jim O’Neill, the chief global economist at Goldman Sachs bank, which said Britain’s reputation as the world’s leading financial centre has been ‘badly dented’ by Northern Rock.
His warning that it could inflict as much damage on the economy as the Black Wednesday meltdown in 1992 is galling for Ministers because the bank is advising the Treasury over the disposal of Northern Rock. Last night Matthew Elliott, of the Taxpayers’ Alliance, said: ‘With taxpayers having lost so much money in the Northern Rock crisis and being liable for many billions more, the top officials at the bank shouldn’t be receiving a penny in bonuses.
‘This is a typical case of a few fat cats living large at taxpayers’ expense while ordinary families are expected to foot the bill.’
Robin Ashby, of the Northern Rock Small Shareholders Association, said: ‘While there is some argument for a few key talents to be paid retention bonuses, these sums would appear to be disproportionate, to put it mildly. That – and the secrecy involved – highlights the directors’ poor stewardship of the company.’
The Treasury is lining up the former boss of Lloyd’s of London, Ron Sandler, to lead Northern Rock if it is nationalised.
Sell us your story
Our expertise and contacts in newspapers, TV, and magazines gets you the best deal.
Why use us?
Easy Way To Sell Stories
Best Prices Paid