How much of a bonus does Stephen Hester deserve for running Royal Bank of Scotland for the past year? The £700,000 he is estimated to be in line for when the figure is revealed later this month? Or a packet of boiled sweets and a used bus ticket?
The truth is that, despite all the sound and fury it will no doubt generate over the next couple of weeks, Hester's bonus doesn't matter very much. Neither do the bonuses of any of the other senior staff at the bank.
What matters is that the government works out a coherent strategy for RBS. After that, the bonus issue will take care of itself.
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It's not hard to understand why the size of the payout to Hester is going to generate so much controversy: RBS hasn't exactly covered itself in glory over the last 12 months. It has recently been dragged into the Libor scandal, for which it faces huge fines from the Financial Services Authority.
Last summer, thousands of customers lost access to their accounts after the computers went haywire. It's just had to add another £400m to the total amount set aside to cover mis-selling of payment protection policies. Meanwhile, little discernible progress has been made on its return to the private sector. The results are hardly inspiring either.
Last November it reported a third-quarter loss of £1.38bn, taking the losses for the year up to that point to £3.4bn. When the full-year figures are revealed, they will be terrible. Given that the state owns more than 80% of the bank, most taxpayers, struggling with their own daily bills, will be at a loss to understand why they need to pay the chief executive of a state-owned bank a fortune to do what appears to be not a very good job.
The spin doctors will wheel out the usual lines about how the bank is making progress, has to stay competitive in the global marketplace, and how it would all be much worse without him. But it is unlikely that anyone will find these arguments very compelling.
The real problem, however, is not whether Hester gets a bonus of £200,000 or £700,000 or, indeed, a couple of million. It's the conceptual muddle the government has got itself into.
When RBS was rescued during the financial collapse, there was a simple strategy in place plan A. Sir Fred Goodwin's sprawling, mad empire would be placed in temporary public ownership. Some hard-headed bankers would be moved into the boardroom and slowly they would start to rationalise it, close down or sell off a few bits, and swiftly return the company to private ownership.
With a fair wind behind it, the government might even end up making a profit on the rescue. Under that plan, you had to hire talented bankers and pay them the market rate which is a lot. If they met their targets, you'd pay them a bonus as well. You'd do whatever was necessary to get the beast making money again.
If that is still the plan, then the government should defend the bonus awards to Hester and his colleagues. Indeed, if necessary, it should increase the bonuses to bring in the best bankers money can buy. If people don't like it, just explain to them that the state has invested a vast sum of money in RBS. It makes sense to run it as effectively as possible even if people don't like paying bonuses to bankers, it is the best way of getting the public's money back.
There is a snag with Plan A, however. There is not much sign of it actually working. RBS isn't going back to
the private sector anytime soon. The results are not good enough and there is no market for the shares at least at anything close to the price the government paid for them. What was planned as one or two years in state hands is turning into five or six or even ten. At that point, RBS in effect becomes a state-owned bank.
So the government should switch to plan B. It should buy up the few shares it does not already own, and keep RBS in the public sector. It could sell off the few bits that look profitable and run the rest as a dull utility offering safe, basic accounts, and making loans to any sector the government wants to encourage.
Under that plan, RBS doesn't need to pay any bonuses at all. School teachers and doctors don't expect to be paid the odd million or two extra every year and neither should bankers working for the state. Modest civil service salaries would be fine.
Right now though, the government is stuck with the worst of all possible worlds. It is still committed to plan A, but in an increasingly half-hearted way. The result is that it ends up paying big bonuses but does so amid acrimony and apologies.
It should decide on one strategy or the other. Either make another big push to get RBS into shape and bring in some even more highly paid executives, if that is what is needed to get the job done, or it should accept it owns the bank for the foreseeable future and turn it into another branch of the civil service.
There is a perfectly respectable case to be made for either plan. What there is no case for is muddling along with no real strategy that is a bigger scandal than the size of Stephen Hester's bonus.
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