Giving a speech at the London School of Economics on rebuilding banking on Monday, Hester also hit out at the suggestion that the industry had not changed in the four years since the £45bn injection of taxpayer funds bought an 81% stake in the Edinburgh-based bank.
He said the root of the industry's problems lay in scant regard for customer service in the runup to the crisis when "hubris set in" because of a focus on generating income.
Asked by his audience about the Libor scandal Hester said he felt "sadness" as a new way of setting Libor could "have been done a while ago". Changes were announced last week by top regulator Martin Wheatley. He also felt "enormous sadness" at the way it tarnished the whole industry.
When questioned about retaining staff, he said: "If you want good people and you want them engaged you've got to engage their hearts and their heads before you engage their wallets."
"The impression that banks have not made progress in restoring safety and soundness is wrong. We have to remind ourselves that four years ago senior members of the government worried that cash machines at RBS would run dry," said Hester (pictured below).
He again indicated that the bank was preparing to leave the asset protection scheme, after paying a £2.5bn fee for the insurance to cover its most toxic assets. His remarks made little mention of the share price – which closed 3.6% higher at 266p, almost half the average 500p a share the taxpayer paid. But he said: "I think that in business enduring cultural change, like the desire to obtain a higher share price, is rarely best achieved when it is the primary goal."
With a new wave of scandals having hit the industry, from Libor rate manipulation to mis-selling of payment protection insurance, Hester said: "While societies have long been wary of financiers, the current level of negative feeling is, in my view, particularly unhealthy. We need to reach a new compact with society where banks are better at balancing the interests of everyone who depends upon them."
RBS would be putting more emphasis on customer service in its bonus payouts, he said, after ann initial attempt to give shareholders a greater share of the spoils. "Now our reform agenda has to go further so that pay also takes proper account of the customer interest. That means pay awards must be reflective of improvements in customer service and satisfaction and not just sales," Hester said.
guardian.co.uk © Guardian News and Media Limited 2010