RBS 2011 Annual Report Download - page 334

332 RBS Group 2011
3 Operating expenses continued
Long-term incentives
2011
2010 2009
Value
at grant
£m
Shares
awarded
(million)
Options
over shares
(million)
Value at
grant
£m
Shares
awarded
(million)
Options
over shares
(million)
Value at
grant
£m
Shares
awarded
(million)
Options
over shares
(million)
At 1 January 219 250 377 122 7 413 79 1 92
Granted 154 369 9 115 247 3 70 8 353
Exercised (6) (14) — — — (1) — — —
Lapsed (22) (29) (15) (18) (4) (38) (27) (2) (32)
At 31 December 345 576 371 219 250 377 122 7 413
The market value of awards exercised in 2011 was £5 million (2010 - less
than £1 million; 2009 - nil). There are vested options over 48 million
shares exercisable up to 2019 (2010 - 33 million shares up to 2020; 2009
-33 million shares up to 2014).
At 31 December 2011, a provision of £3 million had been made in respect
of 4 million share awards and 14 million options over shares that may be
cash-settled (2010 - £6 million in respect of 3 million share awards and
16 million options over shares; 2009 - £6 million in respect of 3 million
share awards and 16 million options over shares).
The fair value of options granted in 2011 was determined using a pricing
model that included: expected volatility of shares determined at the grant
date based on historic volatility over a period of up to seven years;
expected option lives that equal the vesting period; no dividends on
equity shares; and a risk-free interest rate determined from the UK gilt
rates with terms matching the expected lives of the options.
Variable compensation awards
The following table analyses the Group and GBM variable compensation awards for 2011, which are 43% and 58% respectively lower than in 2010.
Group GBM
2011
£m
2010
£m
Change
%
2011
£m
2010
£m
Change
%
Non-deferred cash awards (1) 72 89 (19) 10 18 (44)
Non-deferred share awards 35 54 (35) 23 43 (47)
Total non-deferred variable compensation 107 143 (25) 33 61 (46)
Deferred bonds awards 582 1,029 (43) 286 701 (59)
Deferred share awards 96 203 (53) 71 175 (59)
Total deferred variable compensation 678 1,232 (45) 357 876 (59)
Total variable compensation 785 1,375 (43) 390 937 (58)
Variable compensation as a % of core operating profit (2) 11% 16% 18% 22%
Proportion of variable compensation that is deferred 86% 90% 92% 93%
Total employees 146,800 148,500 (1) 17,000 18,700 (9)
Variable compensation per employee £5,347 £9,260 (42) £22,941 £50,114 (54)
Reconciliation of variable compensation awards to income statement charge 2011
£m
2010
£m
Variable compensation awarded for 2011 785 1,375
Less: deferral of charge for amounts awarded for current year (302) (512)
Add: current year charge for amounts deferred from prior years 502 383
Income statement charge for variable compensation 985 1,246
Actual Expected
Year in which income statement charge is expected to be taken for deferred
variable compensation 2010
£m
2011
£m
2012
£m
2013
and beyond
£m
Variable compensation deferred from 2009 and earlier 383 160 78 —
Variable compensation deferred from 2010 —342 105 65
Variable compensation for 2011 deferred —— 225 77
383 502 408 142
Notes:
(1) Cash payments to all employees are limited to £2,000.
(2) Core operating profit pre variable compensation expense and before one-off and other items.
Notes on the consolidated accounts continued