February 27, 2009 / 12:27 PM / 11 years ago

COLUMN-How to solve Goodwin's pension mystery: Jonathan Ford

— Jonathan Ford is a Reuters columnist. The opinions expressed are his own —

LONDON, Feb 27 (Reuters) - There is an easy way to short-circuit the entertaining but ultimately fruitless row between City minister Lord Myners and Sir Fred Goodwin concerning the latter’s startlingly generous pension arrangements.

Royal Bank of Scotland (RBS.L) practices the highest standards of corporate governance — or so its shareholders were told when the bank published its 2007 annual report. Now is the chance to prove it. The near-8 million pound increase in Sir Fred’s pension pot must have been sanctioned by the non-executives on the remuneration committee. These are the people to ask. True only one remuneration committee member continues to sit on the RBS board — former UBS investment banker, Colin Buchan. But the others can still be held to account. They include former chairman Sir Tom McKillop, Janis Kong (a director of BAA), ex-Aviva boss Bob Scott and Goldman Sachs bigwig Peter Sutherland.

It would be interesting to hear how these individuals squared Sir Fred’s pourboire with the commitment they gave to RBS shareholders in the remuneration report to ensure that rewards would “be earned through achievement of demanding performance targets based on measures consistent with shareholder interests.” Well, the very existence of the minister’s pathetic letter asking Sir Fred to do the decent thing shows they failed on that score (the government does after all own 84 percent of this thing). Oh, and there is another section worth a glance relating to severance payments. Any payment in lieu of notice, the committee trumpets, would “at maximum, comprise base salary and a cash value in respect of fixed benefits (including pension plan contributions).” However construed, this cannot sanction Sir Fred’s whopping payment.

So it’s really quite simple. If the remuneration committee breached its own guidelines, the shareholders should seek restitution from the non-execs involved rather than the hapless Sir Fred. He is simply a beneficiary of their negligence. This would establish the sound principle of board responsibility and would also demonstrate that the government was behaving like a rational owner. What’s more, there is even a chance of getting the money back. Sutherland alone is probably good for 8 million pounds and there is probably indemnity insurance in the wings.

Indeed the only conceivable reason the government could have for not pursuing the non-execs would be that it had itself rubber-stamped the payment for political and presentational reasons. But if that is the case, it is not the board but the state that has been profligate.

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