RBS 2010 Annual Report Download - page 253

For 2010 performance, the executive directors’ annual incentive will be
delivered entirely as an allocation into Share Bank. The allocated shares
will vest in two equal tranches in March 2012 and 2013, and must then be
held for a further six months. The Group Chief Executive has voluntarily
agreed to a total holding period of twelve months after vesting. Clawback
provisions will again apply prior to vesting of the shares.
2011
The maximum potential allocation of shares in respect of the 2011
financial year under Share Bank will be 6.0 million shares for the Group
Chief Executive and 3.75 million shares for the Group Finance Director.
These allocations were agreed, following consultation with shareholders
at the beginning of 2011. The potential allocations represent normal
maximum annual incentive levels for executive directors based on the
share price prevailing at the start of the consultation period and will be
assessed for final allocation in 2012 on that basis. Depending on share
price movement during the performance period, the value of the final
allocation could further increase or decrease.
Between 0% and 100% of the maximum potential allocation will be
formally allocated into Share Bank in March 2012 based on 2011
performance across five performance categories: strategic direction;
business delivery and financial performance; stakeholders (including
delivery against UK government lending commitments); risk and control;
and capability and development. Fixing the number of shares in this way
avoids unintended consequences arising from share price volatility
around award dates and provides a clear alignment with shareholder
interests through the year.
The Remuneration Committee will determine the actual allocation to
Share Bank by reference to the extent to which executive directors have
met the performance targets. Shares allocated in respect of 2011
performance will vest in two equal tranches in March 2013 and 2014
respectively. Clawback provisions will apply to shares allocated to Share
Bank for the period prior to their vesting.
Share awards made as part of Share Bank will be delivered under the
rules of the Deferral Plan approved by shareholders in 2009.
An illustration of Share Bank for the 2011 performance year is set out
below:
To comply with the FSA Code, shares will be subject to a holding period
of six months after vesting.
Long-term incentives
The Group provides long-term incentives which are designed to link
reward with the long-term success of the Group and recognise the
responsibility participants have in driving its future success and delivering
value for shareholders.
Performance conditions attaching to awards made to executive directors
under the LTIP in 2010 are shown on page 259.
As in 2010, awards in 2011 will be granted under the LTIP, and will be
entirely in the form of shares (rather than share options).
Awards to executive directors have a normal maximum limit of 400% of
salary. Whilst the award policy for executive directors may be increased
in exceptional circumstances, prior shareholder consultation would be
undertaken.
Awards granted to executive directors in 2011 will be capped at 375% of
agreed salary.
Performance criteria for awards granted to executive directors
under the LTIP in 2011
Performance conditions for the 2011 LTIP awards have been chosen not
only to align executive directors directly with outcomes for shareholders
but also with those key actions required to deliver shareholder value over
the long term and factor in the growing regulatory emphasis on risk-
adjusted financial metrics. The four performance measurement areas set
out below are equally weighted:
xRelative Total Shareholder Return (TSR) (25%);
xCore Bank Economic Profit (25%);
xBalance Sheet & Risk (25%); and
xStrategic Scorecard (25%).
The four performance conditions attached to the awards (see description
of performance conditions on pages 252 to 254) will each have the ability
to deliver a number of shares worth up to 100% of salary (based on
agreed salary at date of grant and share price based on a five day
average prior to grant); however, the number of shares that vest will be
subject to an overall cap in value of 375% of salary (again, based on
agreed salary and share price at the time the award was made).
50%
There is an underpin to the performance conditions whereby awards will
only vest if the Committee is satisfied that risk management during the
performance period has been effective and that financial and non-
financial performance has been satisfactory, in line with the Strategic
Plan. In assessing this, the Committee will be advised independently by
the Board Risk Committee.
Maximum
potential
allocation
determined
2011 2012 2013 2014
Performance
Subject to clawback prior to vesting
50%
(0% to 100%)
Year
251RBS Group 2010
Governance
Maximum
potential
allocation
determined
2011 2012 2013 2014
Performance
Subject to clawback prior to vesting
50%
(0% to 100%)
Year
50%
Allocation to bank