RBS 2010 Annual Report Download - page 252

Deferred awards
The purpose of deferred awards is to support a performance culture
where employees recognise the importance of sustainable Group,
business and individual performance. Under the Group-wide deferral
arrangements a significant proportion of annual incentive awards for our
more senior employees will be deferred over a three year period.
Deferred awards are subject to clawback.
Anew deferral plan was approved by shareholders on 15 December
2009. Under this plan, annual incentives are deferred into awards vesting
over a three year period. A significant portion of deferral is in a form
which meets regulatory requirements.
Long-Term Incentive Plans
To encourage the creation of value over the long term and to align the
rewards of the participants with the returns to shareholders, the
Group provides employees in senior roles (executive level and selected
senior management) the opportunity to receive annual awards of long-
term incentives.
Anew Long-Term Incentive Plan was approved by shareholders on 28
April 2010, under which awards are structured as performance-vesting
shares. For the most senior roles, vesting will be based partly on
divisional or functional performance and partly on performance across the
Group.
Awards will not vest unless the Remuneration Committee is satisfied that
risk management during the performance period has been effective at a
Group and division/functional level. The Remuneration Committee's
determination will be informed by input from the Group Chief Risk Officer
and the Board Risk Committee. Specifically, prior to vesting, the
Remuneration Committee will have regard to risk and compliance across
the Group and divisions and make an assessment of future risks as
appropriate.
All awards are subject to clawback.
Pension arrangements
The Group aims to provide competitive retirement benefits. Since
October 2006, UK employees have been eligible for a cash allowance in
lieu of pension provision and have had the facility to choose to have part
of their remuneration in the form of contributions to The Royal Bank of
Scotland Group Retirement Savings Plan. A little over one half of UK
employees continue to participate in defined benefit pension
arrangements.
Executive remuneration policy
Components of executive directors’ remuneration
Salary
Base salaries of executive directors are reviewed annually. It has been
agreed that the Group Chief Executive will receive no increase in base
salary in 2011. The annual salary for the Group Finance Director will be
increased from £725,000 to £750,000 with effect from 1 April 2011.
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.
Details of pension arrangements of directors are shown on page 262.
Gordon Pell retired from the Group and the Board on 31 March 2010,
shortly after his normal pension age of 60. Details of his pension are
shown in this report. Following Gordon Pell's retirement, no current
director is a member of the Group's defined benefit pension plans.
For all executive directors joining on or after 1 October 2006, pension
provision is in the form of a pension allowance which may be used to
participate in The Royal Bank of Scotland Group Retirement Savings
Plan which is open to all employees, or to invest in alternative pension
arrangements, or to take all or some of the allowance in cash. In addition,
as employees, executive directors are eligible to participate in Sharesave
and Buy As You Earn plans. These plans are not subject to performance
conditions since they are operated on an all-employee basis. Executive
directors also receive death-in-service cover.
In addition to salary and benefits, executive directors receive variable
remuneration in the form of annual and long-term incentives.
Annual incentives
Following consultation with UKFI and other institutional shareholders, a
Share Bank arrangement has been put in place for the executive
directors’ annual incentive awards for 2010 and 2011. The Share Bank
arrangement replaces the previous annual incentive arrangement and
means that the executive directors will receive no cash bonus.
2010
The 2010 targets covered progress against the Strategic Plan, financial
performance, risk efficiency and control measures as well as stakeholder
and people management. Executive directors have a normal maximum
incentive opportunity of 200% of salary (with an exceptional maximum of
250% of salary).
The Remuneration Committee has reviewed the annual incentive awards
for the executive directors for 2010 performance, taking into account
performance against targets set at the beginning of 2010. Performance
was assessed across a broad range of quantitative and qualitative
measures and was supported by a robust performance management
framework including a formal half year review.
During 2010, performance has been strong and all the Group's main
performance indicators are ahead of the Strategic Plan both in terms of
timing and outcomes. More information on the Group’s performance can
be found on pages 12 and 13. There are, however, a small number of
areas where the Group is not performing well ahead of the targets which
have been set. Accordingly, the Remuneration Committee has
recommended, and the Board (excluding executive directors) has agreed,
that the Group Chief Executive and Group Finance Director should
receive annual incentive awards of 170% and 186% of salary respectively.
RBS Group 2010250
Directors’ remuneration report continued