RBS 2012 Annual Report Download - page 332

Shareholders views and their impact on remuneration policy
In late 2012 and early 2013, an extensive consultation was undertaken
with institutional shareholders and other stakeholders on the Group’s
remuneration approach.
The consultation process involved one-to-one meetings, a roundtable
session hosted by the Association of British Insurers and National
Association of Pension Funds and a number of follow-up letters and
meetings. Meetings have taken place involving around 20 institutional
shareholders and shareholder bodies representing a substantial
proportion of the non-UKFI shareholding. Topics discussed included
financial progress and building a sustainable business, our remuneration
strategy to date and the future shape of pay. UKFI were also consulted
and as with other shareholders, the Committee received their input.
Investors recognised the challenge faced by the Committee in balancing
the need to pay competitively to support business goals but at the same
time being mindful of the wider economic environment and the need to
show restraint. Shareholders were supportive of the work being
undertaken by the Committee and the Board, and recognised the
progress the Group is making towards recovery.
There was widespread support for the Group Chief Executive and the
efforts being made by the Committee to seek to reward him fairly for
performance. There was discussion of the accountability review process
and in particular the impact of major events such as LIBOR, together with
questions around culture, turnover and the extent of people risk as a
result of the Group’s pay positioning. The possible use of alternative plan
structures was raised by certain shareholders supporting a requirement
to hold shares until retirement, although there was not widespread
support for this approach. The importance of value sharing between
investors and employees remains a key concern for shareholders.
The Committee and the Board have considered carefully their
responsibilities and have applied judgement to achieve a balance
whereby our remuneration policy supports business goals without
causing unacceptably high people risks.
The support received from shareholders during the consultation period
has been greatly encouraging. Shareholders have played a key role in
developing remuneration practices that support the long-term goals of the
business. Our remuneration approach of delivering a significant
proportion of variable pay for senior executives in shares with deferral
periods and clawback provisions provides strong alignment with the
interests of shareholders.
Service contracts and exit payment policy
The company's policy in relation to the duration of contracts with directors
is that executive directors' contracts generally continue until termination
by either party, subject to the required notice, or until retirement. The
notice period under the service contracts of executive directors will not
normally exceed twelve months.
In relation to newly recruited executive directors, subject to the prior
approval of the Committee, the notice period may be extended beyond
twelve months if there is a clear case for this. Where a longer period of
notice is initially approved on appointment, it will normally be structured
such that it will automatically reduce to twelve months in due course. All
new service contracts for executive directors are subject to approval by
the Committee.
Those contracts normally include standard clauses covering
remuneration arrangements and discretionary incentive schemes, the
performance review process, the company's normal disciplinary
procedure, and terms for dismissal in the event of failure to perform or in
situations involving actions in breach of the Group's policies and
standards.
Any compensation payment made in connection with the departure of an
executive director will be subject to approval by the Committee, having
regard to the terms of the service contract and the reasons for
termination.
Information regarding the executive directors' service contracts is shown
below:
Date of current contract
Notice period -
from the company
Notice period -
from executive
Stephen Hester 4 November 2008 12 months 12 months
Bruce Van Saun 8 September 2009 12 months 12 months
Except as noted below, in the event of severance where any contractual
notice period is not worked, the employing company may pay a sum to
the executive in lieu of the notice period. In the event of situations
involving breach of the employing company's policies resulting in
dismissal, reduced or no payments may be made to the executive.
Depending on the circumstances of the termination of employment, the
executive may be entitled, or the Committee may allow, outstanding
awards under long-term incentive arrangements to vest, subject to the
rules of the relevant plan.
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Directors’ remuneration report Policy Report continued