RBS 2011 Annual Report Download - page 284

282 RBS Group 2011
Assessing past performance
Executive directors’ annual incentive 2011
Executive directors have a normal maximum incentive opportunity of
200% of salary (with an exceptional maximum of 250% of salary). Share
Bank arrangements were put in place for the 2010 and 2011 performance
years. The maximum potential allocation into Share Bank for the 2011
performance year was 6.0 million shares for the Group Chief Executive
and 3.75 million shares for the Group Finance Director. This was based
on the normal maximum annual incentive levels for executive directors at
ashare price of 40p per share (calculated as an average share price over
December 2010).
The Group Remuneration Committee has reviewed executive directors’
performance against targets set at the beginning of the year as
summarised in the table below. Accordingly, the Committee
recommended, and the Group Board (excluding executive directors)
approved, that the Group Chief Executive should receive an award of
60% and the Group Finance Director an award of 80% of their maximum
allocation for the 2011 performance year, which equates to 3.6 million
and 3.0 million shares respectively into Share Bank in 2012. The Group
Chief Executive has waived his allocation. The shares vest in two equal
tranches on the first and second anniversaries of the date of grant and
are subject to a holding period of six months after vesting. Clawback
provisions will apply prior to the vesting of shares.
Stephen Hester
Stephen Hester’s performance is measured against a number of strategic
and business objectives. In the course of 2011 the Group’s priority has
been to strengthen its balance sheet and reduce risk as it works through
the restructuring plan, and this is reflected in good progress on the key
risk measures set out in 2009. Targets for capital, short-term wholesale
funding, liquidity reserves and leverage have all been met ahead of
schedule, while the Group loan:deposit ratio improved further.
Core objectives Targets for 2011 Progress in 2011
Strategic progress Delivery of the five year strategic
plan.
The Group recovery strategy set out in 2009 has proven its effectiveness and in 2011, most
tasks are on or ahead of Plan. This includes operation of Core/Non-Core structure,
rebuilding management and operations and reducing risk. Key Group strategic plan risk
measures set in 2009 were all significantly exceeded in 2011. However, the deterioration in
external economic and financial conditions impacted profits and further led the Group to
prioritise de-risking over driving returns, which affect profitability measures. An extra £1
billion was spent over 2011 in order to accelerate the achievement of RWAs reduction,
liquidity and deposit-gathering goals. It was also necessary to make alterations to the
strategic plan for the investment banking business in the light of new regulation and market
developments.
Business delivery
and financial
performance
ROE, profitability, costs, core tier
1ratio, funding and risk profile,
lending commitments, EU
mandated disposals.
Retail & Commercial’s ROE improved to 11.3%, or 16.6% excluding Ulster Bank. GBM
ROE was 7.7% above median compared to peers, leaving Core overall ROE at 10.5%.
Core cost:income ratio was 60%, with Core Tier 1 ratio at 10.6%. The liquidity portfolio was
held above target levels at £155 billion, while short-term funding was cut to £102 billion.
Gross new lending to business increased by 22%, with lending to SMEs up 4%, exceeding
the Group’s Merlin targets. The branch sale to Santander made good progress as did the
turnaround of RBS Insurance; facilitating its planned divestment.
Risk and control Funding, leverage ratio, risk
measures and Asset protection
Scheme (APS) compliance
requirements.
All risk reduction and control measures were exceeded. This includes Group loan:deposit
ratio (LDR) improved to 108%, with Core loan:deposit ratio ahead of target at 94%.
Leverage was stable at 16.9x. Performance against agreed APS objectives was
satisfactory and significantly improved compared with prior year.
Stakeholder
management
Relationships with shareholders
and other external stakeholders.
Customer satisfaction and
Treating Customers Fairly (TCF)
measures.
Positive feedback from key shareholders and regulators. Increased engagement with
external stakeholders in particular on sustainable lending policies. Good progress to
address risks identified by UK/US regulators relating to TCF.
People management Group’s people strategy including
performance, succession and
people management.
Improvements in employee
engagement.
Stephen Hester is widely acknowledged internally and externally as having provided strong
leadership to the Group in extraordinary circumstances. Talent and bench reviews
completed in all businesses and actions plans agreed. Female executive representation
increased to 18%. The Group’s ‘Your Feedback 2011’ staff survey results showed a
continued upward trend in the vast majority of categories.
Directors’ remuneration report continued