RBS 2007 Annual Report Download - page 108

RBS Group • Annual Report and Accounts 2007
106
Governance
Directors’ remuneration report continued
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 published and
proprietary sources and reaches individual salary decisions
taking account of the remuneration environment and the
performance and responsibilities of the individual director.
Benefits
The Group operates The Royal Bank of Scotland Group
Pension Fund (“the RBS Fund”), a non-contributory defined
benefit fund for employees (including executive directors) who
joined the Group prior to 1 October 2006. 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;
instead they will receive a cash allowance.
Details of pension arrangements of directors are shown on
page 114. Where cash allowances are paid in place of
pension accrual (or of pension accrual on salary over the
pension earnings cap), they are shown on page 110. Executive
directors also receive additional cover for death-in-service
benefits.
Executive directors are eligible to receive a choice of various
employee benefits or a cash equivalent, on a similar basis to
other employees. In addition, as employees, executive
directors are eligible to participate in Sharesave, Buy As You
Earn and the Profit Sharing scheme. These schemes are not
subject to performance conditions since they are operated on
an all-employee basis.
Short-term annual incentives
UK-based executive directors normally have a maximum
annual incentive potential of between 160% and 200% of
salary. For exceptional performance, as measured by the
achievement of additional challenging objectives, executive
directors may be awarded incentive payments of up to 200%
of salary, or 250% of salary, in the case of the Group Chief
Executive, the Chief Executive, Corporate Markets and the
Chief Executive, Retail Markets. Awards will normally be based
on the delivery of a combination of appropriate Group and
individual financial and operational targets approved each year
by the Remuneration Committee.
For the Group Chief Executive, the annual incentive is primarily
based on specific Group financial performance measures such
as operating profit, earnings per share growth and return on
equity. The remainder of the Group Chief Executive’s annual
incentive is based on a range of non-financial measures which
may include measures relating to shareholders, customers
and staff.
For the other executive directors, a proportion of the annual
incentive is based on Group financial performance and a
proportion on divisional financial performance. The remainder
of each individual’s annual incentive opportunity is dependent
on achievement of a range of non-financial measures, specific
objectives and key result areas. Divisional performance
includes measures such as operating income, costs, loan
impairments or operating profit. Non-financial measures
include customer measures (e.g. customer numbers, customer
satisfaction), staff measures (e.g. employee engagement) and
efficiency and change objectives.
In respect of 2007, the Remuneration Committee reviewed the
annual incentive payments for all executive directors taking into
account performance against targets set at the beginning of
the year and covering Group financial performance, each
director’s operational targets, and where appropriate, divisional
financial targets. For all directors operational targets included
specified strategic developments and improvement in
customer and employee satisfaction scores.
Group operating profit targets were met in full notwithstanding
the impact of challenging credit market conditions in the
second half of the year, and customer and employee
satisfaction scores showed improvement in line with or above
expectations. Financial performance in most divisions
exceeded target. As a result, the Remuneration Committee
proposed and the Board (excluding executive directors)
agreed annual incentive payments of up to 112.5% of normal
maximum levels. Levels of incentive payments to executive
directors covered a wide range, reflecting variations in
divisional performance.
Long-term incentives
The company provides long-term incentives in the form of
share options and share or share equivalent awards. Their
objective is to encourage the creation of value over the long
term and to align the rewards of the executive directors with
the returns to shareholders.
Medium-term Performance Plan
The Medium-term Performance Plan (“MPP”) was approved by
shareholders in April 2001. Each executive director is eligible
for an annual award under the plan in the form of share or
share equivalent awards. Whilst the rules of the plan allow
awards over shares worth up to one and a half times earnings,
the Remuneration Committee has adopted a policy of granting
awards based on a multiple of salary. Normally awards are
made at one times salary to executive directors, with one and a
half times salary being granted in the case of the Group Chief
Executive. No changes will be made to this policy without prior
consultation with shareholders. All awards under the plan are
subject to three-year performance targets.