RBS 2012 Annual Report Download - page 335

RBS GROUP 2012
333
Executive directors’ annual incentive 2012 - assessment of performance outcome
Stephen Hester
Stephen Hester’s performance is measured against a number of strategic and business objectives. In the course of 2012, the Group’s priority has been
to deliver a revised Strategic Plan, given the continued challenges in the external environment. Re-balancing the Group towards the retail and
commercial business, whilst continuing to strengthen the balance sheet and reduce risks remained key. Targets for capital, short-term wholesale
funding, liquidity reserves, leverage and loan:deposit ratio were all met ahead of schedule. Stephen Hester gave strong leadership to the Group’s focus
on customers following a technology incident and to ongoing cultural change. Stephen Hester has waived any annual incentive entitlement for the 2012
performance year.
Core objectives Targets for 2012 Progress in 2012
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.
The continued challenges in the economic and regulatory environment prompted
revision of the Group’s strategy, including a restructured wholesale business. The
revised strategy continues to deliver on safety and soundness, whilst rebalancing the
Group towards retail and commercial business and delivering economic returns for the
Core Bank by the end of plan period. The revised strategy for the investment banking
business was implemented successfully, with restructuring targets for 2012 broadly
met. The Asset Protection Scheme was successfully exited in October; this was at the
earliest opportunity post payment of the minimum fee.
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.
Core ROE was stable at 10%, Retail and Commercial (ex Ulster) remained strong at
14%, and Markets improved to 10%. Operating profit for Core (£6.3 billion) and Group
(£3.5 billion) were both ahead of budget. Core cost:income ratio was 59%, with Core
Tier 1 ratio at 10.3%. Core bank business lending and home loans increased by £3
billion despite weak customer confidence. More than £58 billion loans and facilities
were offered to UK businesses, of which over £30 billion was to SMEs; £16 billion of UK
home loans were advanced, including £3 billion to first time buyers. The new Funding
for Lending Scheme allowed RBS to cut interest rates on loans to small businesses and
the cost of borrowing for first time homebuyers. Branch disposal did not proceed due to
unexpected withdrawal of Santander; in contrast, Direct Line Insurance Group plc
divestment successfully executed on time and with positive market reception.
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.
All risk reduction quantitative measures were met or exceeded. The liquidity portfolio is
ahead of target at £147 billion, while short-term wholesale funding was cut to £42
billion. The Group loan:deposit ratio improved to 100%, with Core loan:deposit ratio
ahead of target at 90%. Leverage was on target at 15x. The new conduct risk
framework was launched. As part of the response to the LIBOR findings and industry-
wide challenges on behaviour and ethics, led the development of the Group’s purpose,
vision and values to support cultural and behavioural change. Performance against
agreed APS objectives secured exit from the Scheme.
Stakeholder
management
Achievement of customer franchise
measures, maintain strong and
effective relationships with external
stakeholders and continue progress
on Treating Customers Fairly (TCF)
actions.
Customer metrics were impacted by the technology incident in the second half of 2012
- although strong leadership and successful delivery of ‘no customer out of pocket’.
Constructive engagement with regulators overall and specifically on LIBOR, conduct
risk/cultural change, and the technology incident. Early engagement with the new
Financial Conduct Authority. Continued positive feedback from key shareholders.
Increased engagement with external stakeholders on how banks should behave in
society and cultural change. Continued good progress to address risks identified by
UK/US regulators relating to TCF.
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.
The Group Chief Executive continues to be widely acknowledged internally and
externally as having provided strong leadership to the Group in extraordinary
circumstances. People Plans in place with continual improvement on talent bench
strength. Key replacement appointments made to Management Committee. Female
executive representation increased to 19%. The Group’s ‘Your Feedback 2012’ survey
results were stable on leadership and employee engagement in a challenging context.
The Group’s purpose, vision and values will support improvements in employee
engagement.