RBS 2007 Annual Report Download - page 107

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RBS Group • Annual Report and Accounts 2007
Governance
Directors’ remuneration report
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 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 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 provided advice
and support in connection with a range of compensation
benefits, pension actuarial and investment matters. The
advisers to the Remuneration Committee are appointed
independently by the Committee, which reviews its selection of
advisers annually. The Committee is satisfied that the
consultants from Watson Wyatt and Mercer who advise the
Committee operate independently of the consulting teams
undertaking other work with the Group.
Compensation
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. A new executive share option plan was approved by
shareholders at the company’s 2007 Annual General Meeting.
During 2007 the Remuneration Committee continued to review
policy in light of business needs, market changes and
shareholder comments.
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, European and
US banks.
•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
below.
•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 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% of
the package is fixed and 79% is performance related. For the executive directors,
27% is fixed and 73% is performance related. Values are shown on the basis of on-
target annual performance with long term incentives at the approximate fair value at
grant (80% of the face value of the shares for the MPP and 12% for the ESOP). In
2007 the MPP grant due to vest lapsed in its entirety having not met the required
performance conditions. The executive share options due to vest in 2007 vested in
full. At the date of vesting the share price was £6.96 and the exercise price was
£5.78. Pension and other benefits have been excluded from this diagram. Financial
metrics include profit growth, cost control and return on equity.
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 maintains oversight of the application of
remuneration policy below this level. The Committee reviews all
long-term incentive arrangements operated by the Group.
Base salary Financial (annual) Operational (annual)
All Employee Profit Share (annual) Medium Term EPS growth
Medium Term TSR growth
Group Chief Executive Executive directors