RBS 2012 Annual Report Download - page 323

RBS GROUP 2012
321
Decisions made on pay
In addition to financial and non-financial measures, the Committee
applies a rigorous accountability review process in determining pay
outcomes. This framework enables us to claw back awards made in
previous years where current or new information would change the
decisions made in previous years. The review considers not only financial
losses but also behavioural and reputational issues that have arisen.
Whilst the Group made significant progress across a range of measures
in 2012, the Committee, in conjunction with the Board, agreed that the
reduction to shareholder value and reputational damage caused by
incidents such as the LIBOR settlement should result in a reduction of
this year’s variable pools and the application of clawback. Further details
of the impact of these incidents on remuneration is set out on page 341.
Some of the key outcomes on pay are as follows:
x Total variable compensation has been reduced from 2011 by 14% at
a Group level and 20% for Markets (the reductions are 23% and
40% respectively after the application of clawback) as further
evidence of the action that has been taken to bring down overall
levels of pay;
x Variable compensation (pre clawback) as a percentage of operating
profit before variable compensation decreased from 28% to 16% for
2012 for the Group and from 25% to 16% for Markets. Full details
can be found in Note 3 to the consolidated accounts on pages 379
and 380;
x Since 2010, total variable compensation for the Group has been
reduced by over 50%;
x Within the context of reduced variable pools, incentive awards
continue to be targeted towards high performers and, as a
consequence, 40% of employees eligible for an award will receive
zero for 2012;
x Of those employees who do receive an award for 2012, 68% will
receive less than £2,000 in total and 81% will receive less than
£5,000; and
x Average salary increases across the Group for 2013 will be less
than 2%.
The CEO, Stephen Hester, will not receive any salary increase in 2013.
In addition, he decided during the year that it would not be appropriate for
him to be considered for any annual incentive award. Whilst respecting
his decision, I would like to put on record that the Committee believes the
CEO continues to demonstrate strong performance and leadership. The
Committee receives regular encouragement from institutional
shareholders to improve the delivery of market competitive remuneration
to the CEO.
Enhancements to remuneration policy
The Committee continues to recognise the importance of driving cultural
change both in terms of pay and in a wider sense. As Chair, I am actively
involved in a number of initiatives relating to diversity, graduate
recruitment and management development and many of these initiatives
have received award-winning recognition.
It is clear that challenges remain in rebuilding the reputation of banks but
progress has been made in evolving the culture of RBS. Our
remuneration policy underpins this work by encouraging appropriate
behaviours and adjusting for risk. Examples of enhancements are as
follows:
x Simplification of sales incentives with a broad move to a balanced
scorecard type approach focused on customer service and risk;
x All executives and Code Staff have culture included as part of their
2013 objectives supported by quantitative and qualitative measures;
x Full review of balanced scorecard metrics, supported by
independent control function review in advance of variable pools
being agreed;
x This year, all our employees will be paid salaries at or above the
Living Wage; and
x Shareholding requirements for the executive directors have been
strengthened and new requirements introduced for senior
executives to better align their interests with those of shareholders.
We will continue to monitor external developments and, where
appropriate, refine our remuneration policy, for example, in light of the
requirements of CRD IV.
Enhancements to remuneration governance and reporting
In recognition that the Committee considers issues wider than just
remuneration, the name of the Committee was changed to the Group
Performance and Remuneration Committee. This reflects the
Committee’s broader oversight role to consider performance in the round
in supporting the Group’s purpose, vision and values aspirations. During
2012, the Committee has worked closely with the Board Risk Committee
and Group Audit Committee, both of which have provided valuable input
on key risk and control issues.
Changes have been made to this report in line with a number of
anticipated government reforms on remuneration reporting. The
Remuneration Governance section covers the activities and decision-
making process of the Committee; the Policy Report covers future
remuneration policy; and the Implementation Report demonstrates how
pay arrangements have been implemented over the past year.
As in previous years, we have consulted with our major shareholders,
including UKFI, on remuneration matters. I would like to thank those
shareholders who continue to recognise and support our efforts to reform
remuneration practices at RBS. In this turnaround period where it has not
been possible to pay ordinary dividends to shareholders, this support on
pay decisions has been an essential part of our restructuring programme.
Finally, I would also like to thank my fellow Committee members for their
expertise and guidance and all those who have supported the Committee
in its efforts to make fair and appropriate judgements.
Penny Hughes
Chair of the Group Performance and Remuneration Committee
27 February 2013