RBS 2007 Annual Report Download - page 109

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RBS Group • Annual Report and Accounts 2007
Governance
Awards made in 2006 and 2007 are subject to two
performance measures; 50% of the award vests on a relative
Total Shareholder Return (“TSR”) measure and 50% vests on
growth in adjusted earnings per share (“EPS”) over the three
year performance period.
For the TSR element, vesting is based on the level of
outperformance by the Group of the median of the comparator
group TSR over the performance period. Awards made under
the plan will not vest if the company’s TSR is below the median
of the comparator group. Achievement of median TSR
performance against comparator companies will result in
vesting of 25% of the award. Outperformance of median TSR
performance by up to 9% will result in vesting on a straight-line
basis from 25% to 125%, outperformance by 9% to 18% will
result in vesting on a straight-line basis from 125% to 200%.
Vesting at 200% will occur if the company outperforms the
median TSR performance of the comparator group by at least
18%. For awards made in 2006 and 2007, the companies in
the comparator group were ABN AMRO Holdings N.V.; Banco
Santander Central Hispano, S.A.; Barclays PLC; Citigroup Inc;
HBOS plc; HSBC Holdings plc; Lloyds TSB Group plc and
Standard Chartered PLC. Following the acquisition of ABN
AMRO by the Consortium Banks in October 2007, the
Remuneration Committee agreed that Fortis N.V. would replace
ABN AMRO in the comparator group for awards made in 2006
and 2007, and also for awards to be made in 2008.
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 is 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 is
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 and 2007, the EPS element of
the awards will not vest if EPS growth is below 5% per annum
compound 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 compound.
Options
A new executive share option plan was approved by
shareholders at the company’s 2007 Annual General Meeting.
Options were subsequently granted to executive directors over
shares worth up to a maximum of three times salary with an
EPS performance condition.
The performance condition is based on the average annual
growth in the Group’s adjusted EPS over the three year
performance period commencing in the year of grant. The
calibration of the EPS growth measure is agreed by the
Remuneration Committee at the time of each grant having
regard to the business plan, prevailing economic conditions
and analysts’ forecasts.
In respect of the grant to executive directors in 2007, options
will only be exercisable if, over the three year period, the
growth in the company’s adjusted EPS has been at least 6%
per annum (‘the threshold level’). The percentage of options
that vest is then determined on a straight line basis between
30% at the threshold level and 100% at the maximum level for
growth in adjusted EPS of 12% per annum.
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.
US based director – Larry Fish
Larry Fish was previously Chairman and Chief Executive
Officer of Citizens Financial Group, Inc. From 23 March 2007,
he was appointed Chairman, RBS America and Citizens. With
effect from 1 January 2008 he has undertaken that role in a
non-executive capacity and is being paid a fixed fee of
US$600,000 per annum (inclusive of fees as a non-executive
director of the company with effect from 1 May 2008).
He will not participate in any annual bonus plan nor will he be
eligible for further grants under any long term incentive plans.
Existing long term incentive awards will vest to him, subject to
achievement of all relevant service and performance conditions,
at the completion of the appropriate performance period.
Accrual of pension entitlement will cease at 30 April 2008.
He will participate in the Citizens medical insurance plan to
this date, after which he is eligible to join the Citizens retiree
medical plan.