I think Stephen Hester is doing a pretty good job of clearing up the mess at Royal Bank of Scotland.

When he arrived as chief executive three years ago, the bank’s balance sheet was bigger than Britain’s gross domestic product, it was full to the gills with bad debts and underperforming businesses, and staff sentiment was at a low ebb.

Since then, he has rid the bank of £600bn of unwanted assets and started to turn round its lossmaking parts. He has even, belatedly, revealed a plan to shrink RBS’s incongruously ambitious investment banking arm.

But here is the question all of Britain is asking, largely because the country’s taxpayers own 83 per cent of the bank: is he worth the money?

It is worth spelling out what “the money” is. At the moment, it is a far cry from the near-£10m package that was announced shortly after he arrived in the job in early 2009.

He still gets a £1.2m salary, the kind of basic pay most people only dream of. But thanks to a weak share price performance, largely the result of broader European woes, his “long-term incentive plan”, in theory worth as much as £5m a year, is worthless. And a few days ago, after intense political pressure, Mr Hester said he was waiving his annual bonus– worth just under £1m at the time – for the second time in three years.

Sir Philip Hampton, RBS chairman, has made a spirited defence of Mr Hester’s value, saying it was not right that the bank’s chief executive should be pressured into giving up a well-earned bonus reflecting his performance. But Sir Philip also made clear that he and his board recognised the need to change the way RBS pays its top staff if they wanted to avoid this kind of thing happening again.

What should he do to prevent this year’s corrosive pay row becoming an annual event for at least as long as RBS remains taxpayer-owned?

Sir Philip’s initial ideas are commendable enough. He would like to simplify Mr Hester’s pay deal, perhaps by ditching the annual bonus and wrapping it into either salary or the long-term incentive plan, and by being more transparent in setting financial targets.

But initiatives like that will be seen by the general public as no more than tinkering with a multimillion-pound deal.

Sir Philip’s argument is that if you want a banker of Mr Hester’s calibre to run a big complicated bank, and maximise the value of the government’s stake in it, you have to pay for him.

Other countries do not seem to think so. Last week, Spain introduced a punitive restriction on the pay of top bankers working for institutions that have had any government help. Rodrigo Rato, for example, executive chairman of Bankia, is set to see his total pay shrink by three-quarters to €600,000.

In Germany a similar rule has existed for years, with the most notable victim being Martin Blessing, chief executive of Commerzbank. Like fellow executives at the part-nationalised lender, his total pay is capped at €500,000.

In the US, where cut-throat capitalism is supposed to rule at all times, there is a voluntary tradition for chief executives of troubled groups to take a one-dollar-a-year salary until things are fixed. Citigroup chief Vikram Pandit did that after the 2008 crisis.

Yet in Britain, suggestions of fixed pay limits are dismissed as anathema to free markets, the voluntary $1 salary showy gimmickry.

Wouldn’t it be refreshing, though, if Britain’s top bankers stopped citing the inevitable dynamics of the market, insisting that anyone not paid in line with the competition would flee to another job, another sector, another country?

What if, like Mr Blessing in Germany, or Mr Rato in Spain, those in similar roles at UK banks knuckled down and did the job because after years of earning millions they wanted to do something for the public good? As a natural consequence, politicians would lay off the snide attacks on pre-existing bonus deals. Society would be a lot happier.

That scenario might sound naive. It will also feel a little unfair to Mr Hester, who has volunteered to give up a £1m bonus yet has earned little or no praise. The best solution for the bank and for British taxpayers would be for him to stay in the job with a publicly acceptable £500,000 pay cap.

But if that proves unrealistic, the government had better make sure it has in reserve another banker of Mr Hester’s calibre who can wind down RBS’s complex high-risk balance sheet without blowing it up – and costing taxpayers far more in the long run than a £1m bonus.

Patrick Jenkins is the FT’s Banking Editor

patrick.jenkins@ft.com

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