RBS 2010 Annual Report Download - page 249

The retention and motivation of our executive directors is crucial over the
next three years and whilst most aspects of our remuneration policy
remain unchanged, we are making some changes to enhance the overall
effectiveness of executive director remuneration. These include replacing
the annual incentive plan with a long-term Share Bank and changes to
the performance measures for the Long Term Incentive Plan (LTIP). We
have introduced a scorecard of measures relating to risk and strategic
goals to sit alongside the existing measures of total shareholder return
and economic profit. These measures ensure that rewards for executive
directors are aligned with achieving a sustainable long-term platform for
the future success of the Group across a range of areas including risk,
profitability, franchise strength and people. Details of these changes are
set out in the Remuneration Report.
While the primary focus of the remuneration policy clearly has to be to
support the business to deliver the Strategic Plan, some shareholders
asked for reassurance that the Remuneration Committee had in place
sufficient tools to be able to adjust remuneration appropriately should
another financial crisis occur. I am pleased to confirm that a huge amount
of progress has been made in this respect.
The starting point is making sure we set the right objectives in the first
place. Risk is a key factor when setting annual and long term objectives
and an independent review of risk objectives is undertaken by the RBS
Risk Management function and the Board Risk Committee. At the end of
each performance period, performance outcomes and bonus pool
proposals are subject to rigorous review by the control functions,
independent of the businesses/divisions. Our LTIP also has a risk
underpin whereby awards will not vest unless the Remuneration
Committee is satisfied on risk performance. Both annual and long term
awards are subject to clawback and, accordingly, the Remuneration
Committee has discretion to reduce the number of shares under award or
determine that no shares will vest.
Changes to approach
In addition to the changes made to executive directors’ remuneration
arrangements, the Remuneration Committee reached decisions on the
following key areas during 2010:
xestablishing a governance framework for incentive plans and bonus
funding across the Group, involving the Finance, Risk and Human
Resources functions at all key decision points;
xastructure of deferment for incentives for up to three years, with the
ability to clawback if appropriate; and
xthe introduction of a new Long Term Incentive Plan following
consultation with a number of institutional shareholders.
The new LTIP received the approval of over 99% of shareholders at the
Annual General Meeting in 2010, and at the same meeting the
Remuneration Report received overwhelming shareholder support.
External developments
Anumber of external developments have impacted remuneration and
remuneration policy in 2010, including the publication of the FSA’s
revised Remuneration Code (the “FSA Code”). In light of the FSA Code,
areview was undertaken of the remuneration policy and governance
arrangements. I am pleased to report that the Group has been fully
compliant with all aspects of the FSA Code from 1 January 2011.
The Remuneration Committee supports the UK Government’s position
that an international approach is required in relation to regulation on
remuneration and disclosure. To rebuild the value of the company, an
international level playing field that allows the Group and other UK banks
to compete fairly with international competitors is essential.
On 9 February 2011, the UK Government issued a statement in
connection with Project Merlin, which represents commitments by the
UK’s four largest banks, including the RBS Group, on matters including
lending, shareholder engagement and pay disclosures. The banks have
agreed that aggregate UK bonus pools will be lower than last year
reflecting consideration of the public mood and engagement with key
stakeholders. Furthermore, as a result of the Project Merlin agreement,
we are disclosing in this year’s Remuneration Report the pay of our two
executive directors and the pay of the five highest paid senior executive
officers. The Remuneration Committee has also reviewed the
remuneration of the ten highest paid staff in each of the Group’s divisions.
Throughout 2010 we continued to work through a period of
unprecedented restructuring. The Group has delivered remuneration
arrangements that are FSA compliant, take proper account of the public
mood and call for restraint and support the overarching objective of
maximising shareholder returns and delivering a profit for the taxpayer.
Importantly, these arrangements are consistent with the Project Merlin
agreement.
On behalf of the Remuneration Committee I would like to place on record
our sincere appreciation for our people who have continued to focus on
service to our customers, managing risk and driving the performance of
our core and non-core businesses. Our people are working hard to help
return the Group to financial strength and the Remuneration Committee is
committed to creating an environment in which they can meet their
ambitions.
Penny Hughes
Chair of the Remuneration Committee
23 February 2011
247RBS Group 2010
Governance