RBS 2006 Annual Report Download - page 115

RBS Group • Annual Report and Accounts 2006
114
Directors’ remuneration report
Governance
The Remuneration Committee
The members of the Remuneration Committee are Bob Scott
(Chairman), Colin Buchan, Jim Currie, Janis Kong, Sir Tom
McKillop and Peter Sutherland. The members of the
Remuneration Committee comprise independent non-executive
directors, together with the Chairman of the Board.
During the year, the Remuneration Committee received advice
from Watson Wyatt and Mercer Human Resource Consulting on
matters relating to directors’ remuneration in the UK (Watson
Wyatt) and US (Mercer), together with advice from the Group
Director, Human Resources and the Group Secretary and
General Counsel on general remuneration matters. In addition,
the Remuneration Committee has taken account of the views of
the Chairman of the Board (who was appointed as a member of
the Remuneration Committee in September 2006) and the
Group Chief Executive on performance assessment of the
executive directors.
In addition to advising the Remuneration Committee, Watson
Wyatt provided professional services in the ordinary course of
business, including actuarial advice and benefits
administration services to subsidiaries of the Group and
investment consulting and actuarial advice to the trustees of
some of the Group’s pension funds. Mercer Human Resource
Consulting provided advice and support in connection with a
range of benefits, pension actuarial and investment matters.
Remuneration policy
The Remuneration Committee conducted a comprehensive
review of all aspects of the remuneration package in 2005,
and the executive remuneration policy outcome was approved
by shareholders at the company’s Annual General Meeting in
2006. During the year, the Remuneration Committee continued
to review policy in light of market changes and shareholder
comments. As a result, a new executive share option plan is
being submitted to shareholders for approval at the company’s
2007 Annual General Meeting.
The objective of the executive remuneration policy is to
provide, in the context of the company’s business strategy,
remuneration in form and amount which will attract, motivate
and retain high-calibre executives. In order to achieve this
objective, the policy is framed around the following core
principles:
•Total rewards will be set at levels that are competitive within
the relevant market, taking each executive director’s
remuneration package as a whole. The relevant market is
FTSE top 20 companies and major UK banks for the UK-
based executives and US retail banks for US-based executives.
•Total potential rewards will be earned through achievement
of demanding performance targets based on measures
consistent with shareholder interests over the short, medium
and longer term.
•Remuneration arrangements will strike an appropriate balance
between fixed and performance-related rewards. Performance-
related elements will comprise the major part of executive
remuneration packages. See illustrative charts opposite.
•Incentive plans and performance metrics will be structured
to be robust through the business cycle.
•Remuneration arrangements will be designed to support the
company’s business strategy, to promote appropriate
teamwork and to conform to best practice standards.
UK-based executive directors’ remuneration balance
The above diagram has been prepared to illustrate the use of performance metrics
in the total direct compensation package. For the Group Chief Executive, 21.5% of
the package is fixed and 78.5% is performance related. For the executive directors,
27% is fixed and 73% is performance related. Values are entered on the basis of
on-target annual performance; long term incentives are shown at the approximate
expected value at grant. Pension and other benefits have been excluded. Financial
metrics include profit growth, cost control and ROE.
The non-executive directors’ fees are reviewed annually by the
Board, on the recommendation of its Chairman. The level of
remuneration reflects the responsibility and time commitment of
directors and the level of fees paid to non-executive directors
of comparable major UK companies. Non-executive directors
do not participate in any incentive or performance plan.
The Remuneration Committee makes recommendations to the
Board on the remuneration arrangements for the executive
directors and the Chairman. The Remuneration Committee also
approves the remuneration arrangements of senior executives
below Board level who are members of the Group Executive
Management Committee, on the recommendation of the Group
Chief Executive, and reviews all long-term incentive arrangements
which are operated by the Group.
Components of executive remuneration
UK based directors
Salary
Salaries are reviewed annually as part of total remuneration,
having regard to remuneration packages received by executives
of comparable companies. The Remuneration Committee uses
a range of survey data from remuneration consultants and
reaches individual salary decisions taking account of the
remuneration environment and the performance and
responsibilities of the individual director.
Benefits
UK-based executive directors, with the exception of Guy
Whittaker, are members of The Royal Bank of Scotland Group
Pension Fund (“the RBS Fund”). Any new executive directors
will not be eligible to participate in the RBS Fund unless they
were already a member prior to 1 October 2006.
Base salary Financial (annual) Operational (annual)
All Employee Profit Share (annual) Medium Te rm EPS growth
Medium Term relative TSR growth
Group Chief Executive Executive directors