Royal Bank of Scotland Group PLC said its chief executive will waive his bonus for 2011, after a particularly fierce public and political outcry over the size and timing of the award.
Stephen Hester was awarded about £963,000 (around $1.5 million) worth of shares last week by the board of RBS. The Edinburgh-based lender remains 83% taxpayer-owned after a 2008 bailout.
The amount, which comes on top of his £1.2 million salary, sparked furor among U.K. politicians and the public, given that the bank is still in state hands and is in the process of laying off about 3,500 employees.
Hester made the decision to forgo his award because he determined the controversy it caused would be "a distraction" for the bank, a person familiar with the matter said. Hester couldn't be reached for comment.
In the wake of the financial crisis, banks and CEOs in the U.K. and the U.S. have come under fire for large payouts. But the furor over bankers' compensation remains particularly intense in the U.K., and RBS, because it is still majority-owned by taxpayers, is a prime target.
Hester has made progress improving the bank's health, trimming its once-sprawling balance sheet and returning most key businesses to profitability. But the bank's share price has remained low, and an exit from government control isn't on the horizon. In addition, his salary and award stand in contrast to those of average Britons, who are facing inflation and job losses in the U.K's struggling economy. His pay has been a subject politicians have jumped on this year.
Hester, who took the helm in late 2008, had no role in the bank's near-demise. However, his bonus is in the spotlight every year. He waived it for 2009; last year, he took a bonus of £2 million despite some pubic criticism.
The firestorm surrounding this year's payout could call into question Hester's tenure at the bank. According to people familiar with matter, Hester is increasingly frustrated with the public scrutiny and the bank's continued government ownership. Others familiar with Hester's thinking said he would almost certainly stay at least until 2014, the scheduled completion of his five-year turnaround plan for the bank.
Hester's refusal of his award could put some pressure on other U.K. CEOs to forgo or scale back bonuses. The CEO of Lloyds Banking Group PLC, which is 43% taxpayer-owned, said earlier this month he would decline a bonus after taking a sudden leave of absence late last year.
This story first appeared on WSJ.com.