RBS 2006 Annual Report Download - page 117
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Please find page 117 of the 2006 RBS annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.RBS Group • Annual Report and Accounts 2006
116
Directors’ remuneration report continued
Governance
The EPS element ensures a clear line of sight for executives to
improve long-term financial performance. For this element, the
level of EPS growth over the three year period will be calculated
by comparing the adjusted EPS in the year prior to the year of
grant with that in the final year of the performance period. Each
year the vesting schedule for the EPS growth measure will be
agreed by the Remuneration Committee at the time of grant,
having regard to the business plan, performance relative to
comparators and analysts’ forecasts.
For the awards made in 2006, the awards will not vest if EPS
growth is below 5% per annum over the three year period.
Where EPS growth is between 5% per annum and 10% per
annum vesting will occur on a straight-line basis from 25% to
100%. Vesting at 100% will occur if EPS growth is at least 10%
per annum.
Options
In 2006, awards were made under the executive share option
scheme approved by shareholders in January 1999. Options
granted to executive directors were over shares worth between
one and a quarter times salary and two and a half times
salary, based on the market value at the date of grant. These
options are exercisable only if, over a three year period from
the date of grant, the growth in the company’s EPS has
exceeded the growth in the RPI plus 9%.
A new executive share option plan is being submitted for
approval at the company’s Annual General Meeting in 2007.
It is proposed that, subject to approval at the Annual General
Meeting, the first grants under this plan will be made following
the Annual General Meeting. Grants to executive directors will
be made over shares worth up to 300% of salary with an EPS
performance condition. The performance condition will be
based on the average annual growth in the Group’s adjusted
EPS over the three year performance period commencing with
the year of grant. The calibration of the EPS growth measure
will be agreed by the Remuneration Committee at the time of
each grant having regard to the business plan, prevailing
economic conditions and analysts’ forecasts.
Shareholding guidelines
In 2006, the Remuneration Committee reviewed the policy on
shareholding requirements and the Group has now adopted
shareholding guidelines for executive directors.
The target shareholding level is 200% of gross annual salary
for the Group Chief Executive and 100% of gross annual
salary for executive directors. Target shareholding levels are
determined by reference to ordinary shares held, together with
any vested awards under the Group’s Medium-term
Performance Plan. Executive directors have a period of five
years in which to build up their shareholdings to meet the
guideline levels.
Group Finance Director – Guy Whittaker
Guy Whittaker joined the Group on 1 February 2006. On
recruitment, Mr Whittaker was compensated for the value of
restricted stock and unvested options he forfeited on departure
from his previous employer. This compensation took the form of
a grant of ordinary shares in The Royal Bank of Scotland
Group plc worth £1,000,000 and restricted stock worth
£1,450,000, the latter vesting in three tranches between 2007
and 2009. In addition, Mr Whittaker forfeited his performance
bonus from his previous employer and was compensated by a
cash payment of £1,195,181 and a grant of restricted stock
worth £962,785, the latter vesting in four tranches between
2007 and 2010. Mr Whittaker’s current remuneration
package is in line with those of the Group’s other UK-based
executive directors.
US based director – Lawrence Fish
The remuneration policy for Mr Fish is as follows:
Base salary is set having regard to the levels of base salary in
other US banks and the appropriate balance of fixed and
variable remuneration for US based executives of UK listed
companies operating within the corporate governance
frameworks of the UK.
Benefits Mr Fish accrues pension benefits under a number of
arrangements in the US. Details are provided on page 124.
In addition he is entitled to receive other benefits on a similar
basis to other Citizens employees.
Short-term performance rewards take the form of an annual
incentive plan which rewards the achievement of Group,
business unit and individual financial and non-financial targets.
The normal maximum annual bonus potential is two times
salary, although additional amounts to a maximum of a further
two times salary may be awarded, at the discretion of the Board,
for exceptional performance as measured by the achievement
of significant objectives.
Long-term incentives consist of the following components:
•The last grant made under the Citizens Phantom 2000 Plan
vested on 1 January 2006. The value of units at the time of
vesting was based on the cumulative economic profit
generated by Citizens, the trend in economic profit and on
the external market trends in the US banking sector, using
price/earnings ratios of comparator US banks.
•A grant under the Group’s Medium-term Performance Plan
within the levels, and on the same terms, available to UK
based executives.
•A grant under the executive share option scheme within the
levels, and on the same terms, available to UK based
executives. In 2007, Mr Fish will be eligible for a grant under
the new executive share option plan if approved by
shareholders at the company’s Annual General Meeting.
•A grant under the new Citizens Long Term Incentive Plan
approved by shareholders at the company’s Annual General
Meeting in 2005. Performance is measured on a combination
of Growth in Profit before Tax and Relative Return on Equity
based on a comparison of Citizens with comparator US
banks. The targets for this plan are set on an annual basis
over the three year term of the grant. The target value of the
award made under the plan in 2005 was 33% of salary and
in 2006 was 75% of salary. Each award may deliver up to a
maximum of twice the target value.