RBS 2011 Annual Report Download - page 297

RBS Group 2011 295
The context for this special LTIP award was the important role the
restructuring and performance of GBM played in RBS recovery plan
amidst the fall out from the financial markets crisis of 2008. GBM
underwent a radical restructuring with wholesale management changes,
exit of multiple business lines and geographies and a balance sheet
reduction from c. £874 billion pre-crisis to £362 billion at year end 2011.
During this period the success of this part of the restructuring, the
stabilisation of GBM and the restoration of profitability in GBM were vital
ingredients in the broader RBS recovery plan.
During the three years covered by the LTIP award, GBM accomplished
its restructuring goals and contributed £10.7 billion of operating profit to
RBS (a cumulative ROE of 18%, good by industry comparison and good
in absolute terms). This performance was ahead of targets and a key
ingredient in financing the risk clean up across the whole of RBS
accomplished during that time. Without these profits the RBS
recapitalisation would have been insufficient.
PwC provided independent analysis and advice to help the Group
Remuneration Committee as it made its judgement on the appropriate
level of achievement against the performance conditions. The Committee
also obtained independent legal advice on the operation of the
performance conditions. The Group Remuneration Committee
determined that the majority of targets laid down for the period had been
met and in important areas exceeded. Some shortcomings were
acknowledged relating primarily to lower GBM profitability in 2011 and the
closure of cash equities (4% of GBM 2011 income) where targets had not
been realised, hence the 27% reduction in vested award value.
While John Hourican, as a member of RBS executive committee, is
eligible for annual LTIP awards, the 2009 award was unusual in its size
reflecting the special circumstances of the time. Nevertheless, in
recognition of the 2009 award payout and the public debate around
executive pay, John Hourican has asked the Group Remuneration
Committee not to make any LTIP award to him for the 2012 grant year,
which would normally vest in 2015.
FSA Remuneration Disclosure
The undernoted disclosures are in accordance with the FSA’s Handbook
for banks, building societies and investment firms (BIPRU) 11.5.18 (6)
and (7).
1. Aggregate remuneration expenditure
During the year, there were 205 Code Staff classified as Senior
Management and 181 other Code Staff. Aggregate remuneration
expenditure was as follows:
Global Banking & Markets
£m
Rest of RBS Group
£m
186.0 130.6
2. Amounts and form of fixed and variable remuneration
Fixed Remuneration
Fixed remuneration paid in 2011 consisted of base salaries paid during
the year plus fees for non-executive directors. There were no special
discretionary pension benefits awarded during the year.
Senior management
£m
Others
£m
68.7 55.2
Variable remuneration for 2011 performance
Variable remuneration payable in respect of 2011 performance consisted
of cash bonuses, share or restricted share unit awards, and other awards
primarily in the form of deferred bonds payable over three years. Cash
bonuses were limited to a maximum of £2,000 per employee.
Form of remuneration Senior management
£m
Others
£m
Variable remuneration (cash) 0.3 0.3
Variable remuneration (shares
subject to retention) 14.4 21.6
Deferred remuneration (bonds) 30.3 48.2
Deferred remuneration (shares) 15.7 25.8
2% of total variable remuneration was subject to a guaranteed commitment made on recruitment
to secure the employment of key individuals.
Long-term incentives
Long term incentive awards made each year are paid three years after
the date of award based on the extent to which performance conditions
are met, and can result in zero payment if performance is not at the
threshold level.
Senior management
£m
Others
£m
23.0 13.2
3. Outstanding deferred remuneration through 2011
The table below includes deferred remuneration awarded or paid out in
2011, primarily for prior year performance. Deferred remuneration
reduced during the year relates to long-term incentives lapsing when
performance conditions are not met.
Category of deferred remuneration Senior management
£m
Others
£m
Unvested from prior year 108.6 152.8
Awarded during the financial year 91.7 143.1
Paid out 60.4 119.8
Reduced from prior years 0.2 —
Unvested at year end 134.2 171.1
4. Sign-on and severance payments
No sign-on or severance payments were made to Code Staff during the
year.
Notes on the presentation of remuneration
In the relevant tables above, assumptions have been made for the
notional value of LTIP (verified by external advisors), forfeitures through
resignation for deferred awards and the share price at 31 December has
been used.