RBS 2008 Annual Report Download - page 161

RBS Group Annual Report and Accounts 2008160
Directors’ remuneration report
The Remuneration Committee
The current members of the Remuneration Committee are Colin Buchan
(committee chairman), John McFarlane and Philip Hampton. The
members of the Remuneration Committee comprise independent non-
executive directors, together with the Chairman of the Board.
During 2008, Jim Currie, Janis Kong, Sir Tom McKillop, Bob Scott and
Peter Sutherland were members of the Remuneration Committee.
The Remuneration Committee’s terms of reference can be found on
www.rbs.com. The Remuneration Committee makes recommendations to
the Board on the remuneration arrangements for the executive directors
and the Chairman. The Board as a whole reserves the authority to make
the final determination of the remuneration of directors as it considers
that this two-stage process allows greater consideration and evaluation
and is consistent with the unitary nature of the Board. No director is
included in decisions regarding his or her own remuneration.
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 high level oversight of the
application of remuneration policy below this level. The Committee
oversees annual incentive plans and reviews all long-term incentive
arrangements operated by the Group.
The non-executive directors’ fees are reviewed annually by the Board,
on the recommendation of the Chairman of the Board. 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; with the exception of
the Chairman, more details of which can be found on page 161. It has
been agreed that no increase to non-executive directors’ fees will be
made in 2009.
During the year, the Remuneration Committee received advice from
Watson Wyatt and Mercer on matters relating to directors’ remuneration
in the UK and US respectively, together with advice from the Group
Director, Human Resources and the Group General Counsel and Group
Secretary 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
and members of the Group Executive Management Committee.
Watson Wyatt also 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.
Remuneration policy
It has been agreed with HM Treasury that, in addition to complying with
the Association of British Insurer's best practice code on remuneration,
the Remuneration Committee will continue to work to ensure that future
remuneration arrangements are linked to long-term value creation in line
with the Group’s business strategy, with appropriate account taken of
risk and avoiding a bias towards short-term indicators such as profit or
revenues. The company is also actively engaged in discussions with the
Financial Services Authority (FSA) in relation to remuneration policies
and practices across the banking sector and intends that any
remuneration policies should take account of the FSA’s remuneration
design criteria.
Accordingly, in conjunction with the Board and independent advisers
and in consultation with shareholders, the Remuneration Committee is
undertaking a comprehensive review of its remuneration policy which it
will complete during 2009.
UK-based executive directors’ remuneration balance
The chart above shows the make up of remuneration opportunity for on-
target annual performance, and with long term incentive awards shown
at their fair value at the date of grant. Short term incentive payments
earned in relation to 2009 performance will be deferred and will vest,
subject to satisfactory performance, over the following three years. The
actual value of the share option and MPP awards will depend on
performance over the period 2009 – 2011 and the share price at the
time awards vest.
Components of executive remuneration 2009
UK based directors
Salary
Base salaries of executive directors have been reviewed and it has
been agreed that no increases in base salaries will be made as part of
the annual 2009 review.
Benefits
Executive directors are eligible to receive various employee benefits or
a cash equivalent from a flexible benefits account, on a similar basis to
other employees.
Fixed: 34%
Variable: 66%
Fixed: 43%
Variable: 57%
Base salary Benefits Pension allowance
Annual bonus (deferred shares) Long Term incentives
Fixed:
Variable:
Group Chief Executive Group Finance Director