RBS 2009 Annual Report Download - page 225

Letter from the Chairman of the Remuneration Committee
223RBS Group Annual Report and Accounts 2009
Dear shareholder,
Remuneration is one of the most challenging issues currently facing
RBS. The Remuneration Committee has sought to reflect public
sentiment on this issue and the Group’s results, balanced with the need
to remain competitive and retain individuals that are central to the future
success of the Group. We are especially conscious of the public
hostility to some of the higher levels of banking pay and the special
scrutiny in such cases as RBS which is reporting an overall loss. We are
trying to react to this responsibly, but if the staff needed to restore the
Group’s fortunes feel they will be treated worse than at competitors, we
will fail to retain or recruit and thereby fail in our turnaround goals for
RBS. Those responsible for the major failings have left. Our remaining
staff are performing well in profitable businesses or engaged in the
challenging task of turning around our more difficult legacy cases.
The principles I outlined to you in my letter last year connected the long-
term interests of shareholders and customers with the performance of
staff. These principles were the beginning of a fundamental reform of
remuneration within the Group. During 2009, a thorough review of
remuneration policies, processes and governance at RBS was
undertaken. We have committed to positioning the Group at the leading
edge of the financial services sector reform of remuneration and the
changes we are making will help us reach this position. The framework
that the Remuneration Committee has established has strengthened
both the performance management processes and the link between risk
and reward. The basis of the framework is:
•a performance management process which ensures all employees
know what is expected of them and includes a rigorous review of
their achievements;
•pay for performance – all annual and longer term awards are subject
to challenging and measurable performance criteria directly linked to
the Group’s strategic plan;
•deferral – a significant proportion of annual awards are deferred and
longer term awards are subject to a three year performance period;
•clawback – awards can be subject to clawback and may be withheld
if the results later turn out not to reflect sustained longer term
performance; and
•use of shares for bonuses to align interests of employees with
shareholders.
The Remuneration Committee appreciates that this has been another
difficult year for our staff and their families as we restructure the
business. The reality is that it is the hard work of our staff over many
years that has resulted in a core set of resilient and valuable businesses
that will drive our recovery. The performance of the core business
remains strong due to the incredible focus our employees have
maintained on our customers. It is for that reason we continue to create
an environment in which our staff can meet their ambitions as we work
with them to restore and then transform the Group into one of the
world’s most admired, valued and stable banks.
The Remuneration Committee is acutely aware of the additional
responsibilities it carries as a consequence of the support RBS has
received from the UK Government. RBS fully intends to be a responsible
steward of this investment. The Board believes that pay must be both
appropriately restrained but commercial and fair. Our plans take
account of the need for a careful balance to be struck reflecting
competitor positions, the UK bonus tax, the overall results of RBS and
the capital support the Group has received.
The Remuneration Committee reviewed remuneration policies,
processes and practices across the Group to ensure that they support
the strategic goals of RBS which are to serve institutions well, to return
to standalone strength, to return shareholder value, and to reflect best
practice and regulatory requirements. We have taken into account the
recommendations on remuneration made by the G20, the FSA and the
Walker review and we are working towards implementation. The
Remuneration Committee very much hopes that the implementation of
these recommendations creates a level playing field for all banks
internationally. We cannot set remuneration policy in isolation as to do so
would neither reflect the competitive environment nor enable us to
attract and retain employees of the calibre necessary to rebuild the
Group and deliver long-term shareholder value.
During the year, the Remuneration Committee’s activities have focused on:
•ensuring that the Group’s remuneration policies, procedures and
practices are effective and promote the highest possible standards
of risk management;
•designing policies to ensure that remuneration is appropriately
competitive in the markets, sectors and geographies in which RBS
operates, and is related to individual, business unit and
Group performance;
•strengthening the link between remuneration and risk taken and
taking advice from the newly-formed Board Risk Committee;
•developing and implementing a rigorous approach to performance
management, using appropriate risk-adjusted performance
measures and taking into account the full costs and capital allocated
to individual businesses;
Governance