RBS 2011 Annual Report Download - page 289

RBS Group 2011 287
Setting performance for 2012
The executive directors’ annual performance objectives are approved by the Group Remuneration Committee. The risk objectives are reviewed by the
Board Risk Committee.
Core objectives Stephen Hester Bruce Van Saun
Strategic progress Revise original Strategic Plan to respond to significant
changes in the macro environment and outlook for
wholesale banking. Deliver execution of revised strategy.
Monitor and improve the Group and Divisional Strategic
Plans. Drive effective design and implementation of
revised plan. Work with CEO on Group
Strategy/M&A/APS.
Business delivery and
financial performance
Lead delivery of overall performance, including measures
relating to ROE, cost management, Core Tier 1 capital
ratio, funding and risk profile, lending, EU mandated
disposals and restructuring of the wholesale business.
Ensure statutory, regulatory and management reporting is
compliant with all external and internal standards.
Continue to improve ‘best in class’ external reporting.
Provide strong CFO role to the business through strategic
planning, budgeting, forecasting and reporting. Ensure a
robust capital and funding planning framework. Drive
efficiency. Successful completion of EU mandated
disposals.
Risk and control Continue culture change across the Group including
delivery of measures relating to wholesale funding reliance
and liquidity reserves and leverage ratio. Deliver against
agreed APS objectives.
Implementation of effective regulatory changes impacting
capital, funding, liquidity. Improve quality of risk and
financial data. Continue development of Internal Audit
function. Deliver against agreed APS objectives.
Stakeholder management Achievement of customer franchise measures, maintain
strong and effective relationships with external
stakeholders and continue progress on TCF actions.
Continue to develop effective external relationships,
including investors, rating agencies and regulators.
People management Ensure each division/function has high quality leadership
teams, build out performance management, talent
management and succession planning across the Group.
Maintain effective employee engagement.
Lead upgraded team and build positive culture. Contribute
to overall Group management.
The Group Remuneration Committee will determine the actual value of
the award by reference to the extent to which executive directors have
met the performance targets. Awards will be paid entirely in shares and
will vest in two equal tranches on the first and second anniversaries of
the date of grant. Clawback provisions will apply prior to the vesting of the
shares.
Long-term incentive plan (LTIP)
2012 Awards have four performance categories, each with equal
weighting.
Core bank economic profit (25%)
As the value of the Group will be determined by the Core Bank’s ability to
generate enduring returns for shareholders, the Economic Profit measure
is focused on the Core Bank to ensure that performance reflects enduring
earnings for the bank. Economic Profit, being a risk-adjusted financial
measure, is consistent with the FSA Code and also provides a balance
between measuring growth and the cost of capital employed in delivering
that growth.
Core bank Economic Profit is defined as return attributable to
shareholders less equity multiplied by the cost of equity, where:
Return attributable to shareholders is Core Operating Profit reported in
the financial statements, excluding movements in the fair value of own
debt and APS, taxed at a standard tax rate.
Equity is defined as tangible equity allocated to the Core businesses, with
adjustments to strip out distorting impacts arising from movements in the
fair value of own debt, available-for-sale reserves and cash flow hedging
reserve.
Current Cost of Equity is 12%, which is subject to review at least
annually.
At the end of the performance period for the 2012 awards, the Group
Remuneration Committee will assess economic profit performance
against plan in light of targets set by it at the start of the performance
period. Details of the actual targets, and performance against these, will
be disclosed retrospectively once the awards vest.