RBS 2010 Annual Report Download - page 251

Performance evaluation
An internal review of the effectiveness of the Remuneration Committee
during 2010 was conducted. The evaluation used detailed questionnaires
and individual meetings were held with each member. Amongst the areas
reviewed were the role of the Committee, composition, meetings and
processes, continuing professional development and communication.
Generally, the Committee was considered to be effective and meeting its
objectives, with members willing to spend the time necessary to
discharge their responsibilities. Whilst the Committee was viewed as
being of the right size and headed by a strong Chair, composition will be
kept under review to maintain the correct balance of skills and experience.
Improvement in the quality of Committee papers was acknowledged,
although work is being undertaken to deliver further improvements. The
importance of a strong link between the Committee and the Board Risk
Committee was recognised and, whilst it was acknowledged that this
relationship was working well, it was agreed that further improvements
should be actively considered.
The Committee has considered and discussed the report on the
outcomes of the evaluation and is satisfied with the way in which the
evaluation has been conducted, the conclusions and the
recommendations for actions. The outcomes of the evaluation have been
reported to the Board and the actions are being progressed.
Group-wide remuneration policy
The Remuneration Committee has reviewed the Group's remuneration
policy which is anticipated will apply in 2011 and in subsequent years.
The remuneration policy supports the Group's business strategy and is
designed to:
xattract, retain, motivate and reward high calibre employees to deliver
superior long-term business performance; and
xensure that the Group's metrics, reward structures and governance
processes as a whole provide coverage of the key risks in an
appropriate way.
The key principles underpinning the remuneration policy are set out
below:
Pay-for-performance
Reward is linked to business and individual performance and appropriate
account is taken of risk factors associated with that business, including
where appropriate risks associated with the sustainability agenda.
Market facing
Reward structures are designed to offer value for money in the markets
where the Group operates. Both annual compensation and total
compensation are set around market median competitiveness although
our pay-for-performance policy allows for higher pay for the highest
performers.
Allow for customisation
The composition of reward generally allows for customisation through
individual choice, in order to maximise value delivered to employees.
Governance
There is a robust governance framework in place to ensure that reward
design and delivery complies with appropriate policy, standards, and
meets relevant regulatory requirements.
The Remuneration Committee undertakes an annual review of the
adequacy and effectiveness of the remuneration policy to ensure it is fully
aligned with the Group’s long-term objectives. There is also a key role for
the RBS Risk Management function in the management and oversight of
reward structures and decision-making. The Remuneration Committee
will consider any issues raised by the Board Risk Committee prior to
approving the policy.
The individual elements of employees' remuneration packages are as
follows:
Base salary
Base salaries should be appropriate in the specific market for the
business in which an individual works and also reflect the talents, skills
and competencies that the individual brings to the Group. There should
be a sufficient level of fixed pay so that inappropriate risk-taking is not
encouraged.
Annual incentives
Annual incentives are designed to reward good financial and non-
financial performance that supports the business strategy, taking into
account the Group’s risk appetite and personal contribution in the context
that it was delivered.
The approach to determining an appropriate annual incentive pool is
based around four technical workstreams led by the central control
functions (Finance, Human Resources and RBS Risk Management). The
workstreams provide context around how much a market-competitive/on
target pool would be on financial performance, on risk performance, on
capital adequacy and on the impact of incentive awards on the balance
sheet.
Performance is central to the determination of annual incentive pools.
Performance assessment is based on a balanced scorecard of measures
including financial performance, risk, people and customer measures.
Overall expenditure on annual incentives is reviewed by the
Remuneration Committee at the end of each year taking into account the
performance of the business on the basis described above. This is further
scrutinised on a divisional and functional basis based on a range of
different efficiency and risk adjusted profit measures including changes in
Economic Profit for shareholders.
Allocation of any variable reward from the pool depends on divisional,
functional and individual performance against the performance measures
set at the beginning of the year. Individual performance assessment is
supported by a structured performance management framework. Targets
should be specific, measurable, set at the beginning of the year and
communicated to the employees.
The Group only uses guaranteed bonuses in limited circumstances in
accordance with the FSA Code.
249RBS Group 2010
Governance