RBS 2011 Annual Report Download - page 275

RBS Group 2011 273
Stephen Hester subsequently decided to waive his bonus because the
attention it received had become a damaging distraction for him and the
Group. Since this announcement, many of our major shareholders have
expressed overwhelming support for all members of our leadership team
and are supportive of the Group Remuneration Committee’s efforts to
ensure that these individuals are fairly rewarded as they continue to lead
the turnaround of the Group. There is significant concern that the
alternative - attempting to operate on a less-than-commercial basis -
would be value destructive if RBS becomes an unattractive place to work.
Iam convinced that the remuneration approach that we have developed
will serve all our stakeholders well in the long term.
Group-wide remuneration arrangements
It is not only the executive directors’ interests that the Committee
considers. It is also tasked with recognising the work of all our
employees, whilst maintaining a balance and showing restraint.
Examples of where we have shown such restraint are as follows:
xMore than 10,000 of the Group’s most senior employees will not
receive a pay increase for 2012;
xAverage salary increases for 2012 will be less than 1%;
x85% of employees eligible for a bonus will receive less than £10,000.
The majority of employees eligible for a bonus will receive less than
£2,000;
xThe investment bank bonus pool is down by 58% over the last year.
This follows a 33% reduction between 2009 and 2010; and
xThere has been a 43% reduction at Group level in variable
compensation. Details of our variable compensation can be found in
Note 3 on the consolidated accounts on page 332.
The Committee recognises the importance of driving cultural change, not
just through pay, but in the wider sense. As Group Remuneration
Committee Chair, I am actively involved in the Group’s initiatives relating
to diversity, graduate recruitment and management development. I’m
impressed by the quality and depth of these initiatives around the Group,
many of which have received award-winning recognition.
Another area of focus for the Group Remuneration Committee in 2011
has been how value is shared between investors and employees.
Shareholders have rightly questioned whether banks, and in particular
investment banks, have got this right in the past. We are working hard to
get this right now and in the future. A balance is always required between
minimising compensation costs, and so maximising profits in the year,
and protecting the business from which future profits can flow.
We have sought to strike this balance fairly, while erring on the side of
restraint, reflecting the nature of our ownership. In this context, I am
pleased to report that the returns achieved in our investment bank, while
below our targets, compare favourably to our competitors. Yet our
compensation ratios are among the lowest and this has been the position
for the last three years.
We do consider that pay at all investment banks became overheated
during the exuberant period of growth pre-financial crisis. It is clear that
the industry as a whole delivered results in 2011 below the cost of capital.
This is an unsustainable position with further significant costs of
regulation to come. We are committed to taking necessary action on pay
alongside the other strategic business decisions we make around the
reduced size and scope of our activities in order to build a sustainable
business, capable of serving customers and delivering fair and adequate
returns for shareholders and employees.
Our restrained approach to pay is not without risk. Employees at all levels
of RBS have choices about where they work. If we allow a sizeable gap
to open up between how we pay and how others pay, then it will affect
our ability to attract and retain good, well-motivated people to work here.
We do not believe that this would be in the interests of our shareholders,
our customers, or the taxpayer.
We believe we are getting the balance right in difficult circumstances.
Under the leadership of Stephen Hester and his team, RBS is a
challenging but inspiring place to work. Employee engagement continues
to improve, which demonstrates the pride our people have in helping to
fix and recover from one of the biggest failures in corporate history.
Whilst the road to recovery is proving more challenging than probably any
of us envisaged, our people are working hard to help return the Group to
financial strength and the Group Remuneration Committee remains
committed to helping create an environment in which they can meet their
ambitions.
The remuneration process undertaken by the Group Remuneration
Committee is thorough and robust. This year’s report contains more detail
on the decision process to demonstrate to you how engaged and
committed the Committee is to making the best decisions for the benefit
of shareholders, employees and wider stakeholders.
Finally, let me thank my fellow Committee members for their extensive
contributions and all those who supported the Committee to help us
weigh up all the relevant factors and seek the right balance in our
decision-making.
Penny Hughes
Chair of the Group Remuneration Committee
22 February 2012