RBS 2008 Annual Report Download - page 160

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Letter from the Chairman of the Remuneration Committee
RBS Group Annual Report and Accounts 2008
In recognition of the crisis in global financial services and the
unprecedented losses incurred by the Group in 2008, the Remuneration
Committee has been working with the executive to bring about
fundamental change to the way remuneration works throughout the
Group. There is an obvious need for very significant change to
compensation policy and practice across the industry and we intend
that the Group will lead that process in consultation with our major
shareholders.
As we embark on a process of change, our approach has sought to
balance the reality of our current situation with the need to offer a
competitive remuneration package for teams and individuals that are
performing well and in a manner that is sustainable in the long-term.
Achieving this balance is essential to our task of rebuilding the Group's
standalone strength as well as repaying the support of the UK
taxpayers.
In previous years the Directors’ Remuneration Report has described
how remuneration policies are being implemented for executive
directors, but given the exceptional circumstances, I would like to take
this opportunity to describe in greater detail how the Group is
approaching remuneration for all employees.
Immediate key decisions taken by the Group were as follows:
•There have been no discretionary cash bonuses for any employees
for performance in 2008. No bonuses have been paid to anyone
directly associated with the Group’s major losses. There are some
limited contractual commitments to pay bonuses, typically as part of
an agreement on recruitment, and these have been honoured.
•Where there has been exceptional performance by key individuals
and teams, employees have been given deferred bonus awards.
These awards will be released in three instalments in 2010, 2011 and
2012, in the form of RBS Group subordinated debt, by which time we
hope the Group will be well on its way to standalone financial
strength.
If the performance on which these deferred bonus awards was
based later turns out to have been materially different or if there is
subsequent material loss or reputational damage as a result of
activity in the deferral period, or otherwise at the discretion of the
Remuneration Committee, then part of these awards may be reduced
or cancelled without payment (‘clawback’).
•No profit share payment has been made for financial year 2008 and
the scheme has been withdrawn going forward. We have made
changes to benefits for some employees below manager level as part
of the transitional arrangements to end the annual entitlement to profit
share bonuses.
•Annual base salary increases in 2009 will be made to a limited
number of employees and salary increases will be below inflation for
all businesses across the Group.
No bonuses have been paid to executive directors in relation to 2008
performance, and no deferred awards have been made. Over the past
four years, the long term incentive awards granted under the Medium
Term Performance Plan have lapsed due to the performance criteria not
being met.
In respect of 2009, the Remuneration Committee has made key
decisions in relation to the remuneration of executive directors:
•There will be no base salary increase in 2009.
•Any bonus earned in 2009 will be deferred and subject to
clawback provisions.
•No further payments will be made under the company’s Profit Sharing
Scheme for 2009 onwards.
•Annual incentives for 2009 will be based on performance against a
framework of measures, with all payments deferred for up to three
years with potential clawback.
•The exceptional maximum annual incentive opportunity will not be
available.
•The individual performance management processes will be
strengthened at executive levels. This includes a revised performance
scorecard. The five performance areas are strategic direction, finance
and operations, stakeholder management (including employee and
customer satisfaction), efficiency and control, and capability and
development.
•Long term incentive awards will continue to be made under the
Medium-term Performance Plan and the Executive Share Option Plan
but the level of awards will be lowered compared to 2008. All awards
will only vest if stretching performance conditions are met in three
years’ time.
•The provision for an undiscounted pension on early retirement at
employer request will not apply to any executive director appointed in
the future.
The Remuneration Committee recognises that the Group’s performance
has not only impacted its shareholders and customers, but also its
employees who have worked so very hard over many years to build an
organisation of which they were proud and which provided a secure
livelihood for them and their families. The Board deeply regrets that our
employees’ trust has been eroded and their welfare affected during the
last year. While it is both necessary and appropriate that we adopt
stringent measures for employee compensation, we are more mindful
than ever of the need for the Group to continue to develop the best
employment practices in our industry to enable us to retain and recruit
outstanding talent. This is critical to the delivery of our strategic plan
and to build a sustainable and successful Group for the future.
Colin Buchan
Chairman of the Remuneration Committee
25 February 2009