Man or Mouse?

In the murky world of blameless politicians, Lord Myners takes some beating. Hung out to dry by his superiors who need their scapegoat to distance themselves from the debacle over Sir Fred Goodwin's outrageous pension 'deal', Lord Myners was up in front of the 'beaks' yesterday at the Treasury Committee, explaining why Sir Fred had been rewarded for failure when this was exactly what Lord Myners and the Government had sought to protect us all against - after all, it is our money.

Part of the trouble is that Civil Servants and Politicians have a distorted view of pensions. They are not of the real world - pensions to them are something that are paid out of a limitless public pot contributed freely to by current taxpayers. There is no 'accruing fund' or investment strategy, 'money in equals plenty of money out'. So the concept of Sir Fred and RBS having to bolster a pension pot on behalf of an individual is quite alien to most politicians and civil servants - for their world, this is not a reality. Out here in 'reality 2009' we have to find ways of bolstering our dwindling pension funds in order to get some income in retirement and for poor Sir Fred, if he was to get that, then it would need a hefty increase in his pension pot to buy his future.

This was the start of what was to become a very stupid and embarrassing scenario, and the tactical smokescreen that was thrown up was Sir Fred's apparent gracious waiving of his 15 month salary entitlement as compensation for stepping down early. This was something most politicians understood as being embarrassing - after all, Lord Mandelson had recently received 3 years salary from the EU having voluntarily stepped down to take another job - something unheard of in the Private Sector but well understood by 'Fat Cats' in the world of public service and politics. The thought was clearly that the Government had won a small victory over Sir Fred and everyone joined in saying Sir Fred 'had done the right thing'.

But Sir Fred hadn't got where he had through being stupid or by doing the right thing. In his 20 years service at RBS he had managed to build it to be one of the most profitable and largest banks in the world and then bankrupt it. He had done everything but the right thing in most people's eyes. So the last laugh was on the Government - if they thought Sir Fred would walk away empty handed and full of humility, then they were idiots.

As indeed they were.

The Pension

Fred Goodwin had done 20 years service and RBS had a defined benefits pension scheme. Under the scheme he would be effectively retiring early without full service and at the age of 50. In doing so he would be entitled to a far smaller percentage of his salary than if retired at the right age and had a full 30 years service. So, it was decided that a discretionary award would be made to 'top up' his plan and also took into account things like bonuses even though such schemes are 'final salary' schemes based only on basic salary. It has also been revealed that RBS chose to pay £1.8m of tax on top of the £16.9m in his pension pot, half of which was added in order to achieve a final annual pension or £703,000.

Sir Fred had agreed to pay back a lump sum (his 15 month salary) of £2.7m in order to preserve this lucrative pension and for the generous payment of tax. The negotiators chosen by the Government to hammer out the deal with Fred Goodwin were the Non Executive Directors, Tom McKillip and Bob Scott who were formerly Chairman and Head of the Remuneration Committee at RBS respectively. Quite how they arrived at such astronomic figures is hard enough to believe, but quite how anyone in the Government or UKFI (that would be us, the taxpayer) did not look at this is beyond comprehension.

What They Are Asking Us To Believe

Lord Myners, UKFI and the Government at large are asking us to believe that not one single person who had a vested interest bothered to scrutinise the deal on offer to Goodwin and further, they are trying to claim that McKillip, Scott and Goodwin signed the deal before it could be ratified by the Government. Clearly, in order for the latter to be achieved legally, then the Government and UKFI must have given a free rein to McKillip and Scott to strike a deal no matter what the cost was.

To my mind, the Government and UKFI focused on the pay off not the pension and I would assert this was because they do not understand how much private sector pensions actually cost.

Myners told the Committee yesterday that the pension was 'quite extraordinary' in several respects - no kidding? Because the benefits exceeded the cap set by parliament, 97% of the pot was put into a personal trust called a Funded Unregistered Benefit Scheme (Furbs) which is not allowed to provide a tax-free lump sum. In December 2007, after Sir Fred had been asked to leave and RBS was already in taxpayer hands, the Board decided that if Sir Fred took a lump sum from the Furbs then RBS would compensate him for the tax he would have to pay. Myners claimed this was not disclosed to shareholders (the Board clearly had no Government appointed representative despite owning over 70% of the bank) and was a significant amendment to Sir Fred's contract of employment. It should be remembered that Sir Fred claimed to the Treasury Committee in February that his pension was a defined benefits scheme, the same as all staff received at RBS.

It is clear that the Board members at RBS negotiated this settlement without involvement by the Government or UKFI. However, it was also clear that they did exceed any remit given to them - if so, then clearly there would be legal repercussions. The Government and UKFI allowed this to happen. Quite why Myners or Glen Moreno at UKFI did not ask what the details of the final settlement and particularly the pension would be is baffling to say the least. Given that the whole affair was a political hot potato then surely the PM, who stood to be embarrassed by his friendship with Goodwin, should have taken at least a passing interest.

The Facts

The fact remains that this whole sorry saga is all about due diligence and what Brown himself has recently referred to as 'laissez faire' Government. We are going through an unprecedented period of history which has seen the collapse of the banking system due to authorities allowing long term, systematic greed to drive the financial world. Yet when it comes to solve the crisis having allowed it to develop, it has applied the same principles of lack of attention, lack of diligence, lack of understanding and lack of care. This time around they were using public money to solve their mess and they showed even greater incompetence and lack of care as they handed it out without requirements of receipts to see how it was spent. The magic wand of public money was waived and they expected all to be reassembled as before without anyone understanding how it would be done.

They also overlooked the issue which caused it - greed. There was no way that the banking industry would reassemble itself without the same focus on earnings and that is why Fred Goodwin, Tom McKillip and Bob Scott see they have done no wrong.

In the great scheme of things, the £8m top up to Goodwin's pension pot is only a minor percentage of the £37bn spent by the Government in bailing out RBS, a mere 0.0002% to be exact.

Viewed from that angle it seems the Goodwin pension saga is trivial. We the public, who funded it, have a very different view. RBS clocked up the largest loss in UK Corporate history causing a £37bn bail out plus loans and guarantees for the debts run up - potentially mounting to a number greater than the UK GDP. For that, its former CEO is a) allowed to walk away having negotiated his end deal, b) retire and c) have an annual pension from the age of 50 of £703,000 and have a tax bill of £1.8m paid for.

It really does not matter what excuse Myners, UKFI or the Government come out with or the pathetic attempts to appeal to Goodwin's better nature to rectify the problem. It was caused by the crux the whole financial collapse - incompetence, negligence and lack of understanding. For any other mortal employee that would mean instant dismissal - for the Government and their stooges, it is just a minor blip on the sunny horizon.

Why Was Goodwin Not Sacked?

It still comes as a surprise to many that Fred Goodwin was not sacked.

Breaking Corporate loss records spring to mind as a decent cause and you would think that even if he felt that due procedure had not been followed in terms of HR governance, no tribunal would support him and even if they ruled in his favour, the award would be trivial and worth it.

That has a slight snag. You see Goodwin would assert he was merely unlucky. If the financial system had not unraveled in front of his eyes he would still be perched at the right hand of the PM himself and be accoladed as Businessman of The Year in many newspapers like the Times who now lambast him. The snag was that Gordon Brown himself has deemed that the whole banking crisis started in the USA and was called sub-prime - in true revisionist style he has explained it is also a global crisis. He has made sure that it was not anything to do with Britain and its finances although he does suggest that he should have done more back in 1997 after the Asian crisis.

So Goodwin could very easily argue that none of this was his fault - it was a global phenomenon starting in the US and he could not be blamed for how it affected RBS. After all, the PM said so himself, and he is never wrong.

Sacking him could have been difficult when people like Brown make up reasons to save his own skin which inadvertently others can hide behind to mask their own incompetence. Instead Fred Goodwin was allowed to take early retirement and he could dictate his terms with his cronies form his own Board, all because the Government gave him the perfect get-out clause and were stupid enough to allow it.

This whole saga relating to Goodwin's pension started at Gordon Brown's denial of the true cause of the banks' collapse and the way in which he has tried to rectify it. Blame has a habit of finding new homes and Myners will be left out to be slaughtered. The real culprit plots and schemes to live another day.