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Criticized British banker gets pension advance

Fred Goodwin is the former chief of the Royal Bank of Scotland. It was saved from collapse by a government bailout, and the pension he negotiated before stepping down has outraged Britons.

March 18, 2009|Henry Chu

LONDON — The disgraced banker at the center of Britain's biggest compensation controversy has received a $4-million tax-free advance from a lavish pension package negotiated while his company was on the verge of a public bailout, a government minister said Tuesday.

The amount represents only a fraction of a retirement package that entitles Fred Goodwin, the former head of the Royal Bank of Scotland, to an annual payment of about $1 million a year.

The generous payout to an executive who brought one of Britain's biggest banks to the edge of collapse has sparked public outrage here akin to U.S. anger over the bonuses awarded to employees of giant insurer AIG.

In both countries, government officials have vowed to find ways to block the payments. But in both cases, such a move, however popular, will be legally difficult.

Goodwin's pension also raises questions about how much the British government knew of the package as it was being worked out by the bank and whether officials could have stopped it.

Paul Myners, the minister keeping tabs on the process in October, was grilled by lawmakers Tuesday over why he had not intervened to prevent the bank's directors from essentially rewarding Goodwin for failure as they induced him to take an early retirement.

Myners insisted that, although he knew the payout would "of course be enormous," he was unaware of the exact figure under discussion. He blamed the bank's board for treating Goodwin on more favorable terms than warranted; firing Goodwin outright, rather than forcing him to step down, would have cost less.

"I did not negotiate, settle or approve Sir Fred Goodwin's departure terms. All these issues were handled by RBS," Myners said, adding, "It's quite outrageous that a man who led a bank into the largest banking failure ever, a bank which depends on public support, should see a departing executive drawing a weekly pension of 13,000 pounds" -- about $18,250.

Under Goodwin's leadership, RBS grew dramatically through a policy of aggressive expansion but fell hard in the global financial crisis. Last month, it announced a loss of $34 billion for 2008, the largest corporate loss in British history.

At the same time that the bank's board was debating Goodwin's retirement package, RBS was in the course of being partially nationalized. Taxpayers now own about 70% of it.

Myners said Tuesday that Goodwin had taken a $4-million advance on his pension, which is worth about $23 million overall.

Under the terms of the agreement, the lump sum was given tax-free to Goodwin, leaving RBS to pay the appropriate levies.

It was still not too late, Myners said, for Goodwin "to do the right thing" and forgo his lavish pension package, but the fallen banker says he is entitled to it, a position that has earned him much public contempt.

The issue of executive pay is likely to be on the agenda when the leaders of the world's 20 leading economies meet here in London in two weeks.

In an interview with the Guardian newspaper, British Prime Minister Gordon Brown said the summit would consider imposing international limits on executive salaries. Such limits would prevent executives from leveraging larger pay packages from one country to another.


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