RBS 2009 Annual Report Download - page 230

RBS Group Annual Report and Accounts 2009228
Directors’ remuneration report continued
Annual incentives
Annual incentives awarded to executive directors in respect of 2009
performance will be granted under the terms of the new deferral plan
which was approved by shareholders in December 2009. In respect
of 2009, the Remuneration Committee reviewed the annual incentive
payments for executive directors, taking into account performance
against targets for the year and targets relating to the strategic plan.
As a result, the Remuneration Committee proposed annual incentive
payments for Stephen Hester, Gordon Pell and Bruce Van Saun.
The Group Chief Executive, Stephen Hester, has declined his annual
performance bonus for 2009 in the light of the public controversy
currently prevailing on pay and the potential impediment taking such
an award might have on support for the RBS turnaround which he
was hired 15 months ago to lead. The Remuneration Committee,
considers that Stephen Hester significantly outperformed the targets he
was set for 2009 and intended to award a bonus commensurate with
that view. In the light of Stephen Hester’s request, but mindful of the
importance of the turnaround plan delivery that he was hired to achieve,
no bonus will be awarded to him in respect of 2009. However, it remains
the Board’s intention over the course of the recovery period to reward
the Group Chief Executive fairly, appropriately and at market levels for
achievement against the targets we have published to make the bank
safe, successful and valuable again.
The Deputy Group Chief Executive, Gordon Pell, has also requested to
waive his annual bonus for 2009, and in light of his request the Board
has agreed that no bonus will be awarded to him in respect of 2009
performance.
Executive directors have a normal maximum annual incentive
opportunity of between 160% and 200% of salary (with an exceptional
maximum opportunity of 200-250% of salary). The on-target opportunity
is 107% to 133% of salary.
Any incentive payments to executive directors in 2010 will reflect
performance across five performance categories: Strategic Direction,
Finance and Operations, Stakeholders, Risk, Efficiency and Control and
Capability and Development. Group business unit and functional
performance will be considered as appropriate. Clawback provisions
will apply.
Long-term incentives
The Group provides long-term incentives which are designed to link
reward with the long-term success of the RBS Group. The awards are a
significant investment in individuals by the RBS Group, and recognise
the responsibility those participants have in driving its future success
and for delivering share price growth.
In 2009, executive directors received long-term incentives under two
plans, the Medium Term Performance Plan (MPP) and the Executive
Share Option Plan (ESOP). Both plans contain clawback provisions that
allow the Remuneration Committee to exercise its discretion over the
vesting of awards made in 2009. More information on both of the plans
can be found on pages 233 to 235.
Shareholder approval will be sought at the Annual General Meeting on
28 April 2010 for a new long-term incentive plan, to replace the above
plans. The key design features of this plan are outlined on pages 226
and 227.
For executive directors, the proposed performance conditions focus on
shareholder value, while factoring in the growing regulatory emphasis
on risk-adjusted financial metrics. The proposal for awards in 2010 is
that 50% of each award vesting is based on improvement in economic
profit, 25% is based on relative Total Shareholder Return (TSR) and 25%
is based on absolute TSR. There will also be an underpin whereby
vesting levels may be adjusted depending on risk performance and
achievements related to the strategic plan objectives.
It is anticipated that awards under the new long-term incentive plan will
be made to executive directors following shareholder approval of the
plan. Awards to executive directors will have a normal maximum limit of
400% of salary. In the event of exceptional circumstances and if the
award policy for executive directors were to be increased from this level,
shareholder consultation would be undertaken.
Shareholding guidelines
The Group operates 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. Executive directors have a period of five years in which to
build up their shareholdings to meet the guideline levels.
Chairman – Philip Hampton
Following consultation with UKFI and other major shareholders, it was
agreed that Philip Hampton would receive a one-off restricted stock
award on his appointment as Chairman. This award is in the form of nil
priced shares. The award was made on 27 February 2009 over
5,172,413 shares. These will vest, subject to the satisfaction of
performance conditions, on the third anniversary of the date of grant.
The performance conditions include measures on effective governance
and stewardship of RBS, relationships with key stakeholders and
delivery of value and return to shareholders.
In assessing performance to determine the vesting of this award, the
Remuneration Committee will consider a number of factors which
demonstrate whether Philip Hampton has led the successful and
sustainable rebuilding of the Group. The Committee will also require to
be satisfied that the vesting level is commensurate with the underlying
financial performance of the Group.
Philip Hampton has voluntarily agreed that he will retain at least half of
the vested shares for a further period of 12 months after the vesting
date. This reflects his personal commitment to driving the Group’s
performance over the longer term.