RBS 2013 Annual Report Download - page 188
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Business review Risk and balance sheet management
186
Risk appetite* continued
Culture, values and remuneration
Objectives for risk culture
Risk culture plays a key role in the Group’s ambition to build “a really
good bank”. A strong risk culture is a key part of ensuring risk appetite is
effectively embedded across the Group. The link between risk appetite
and strategic objectives encourages people at all levels of the business to
think about risk, how they identify it and how they manage it. It
incorporates the quantitative and qualitative aspects of risk and uses both
absolute and relative risk measures.
Risk culture policies
The Group’s values - of “serving customers well”, “working together”,
“doing the right thing” and “thinking long term” - act as a clear starting
point for a strong and effective risk culture. A wide range of
communication and engagement activities (detailed below) has been
undertaken to discuss the meaning of each value with employees and
how they affect and guide day-to-day activities.
The embedding of the Group’s values into a strong risk culture is
supported by a revised and more focused Code of Conduct. The Code
provides guidance on expected behaviour and sets out the standards of
conduct that support the Group’s values. It explains the effect of
decisions that are taken and describes the principles that must be
followed.
These business principles cover conduct related issues as well as wider
business activities. They focus on desired outcomes, with practical
guidelines to align the Group’s values with its commercial strategy and
actions. The embedding of business principles facilitates sound decision
making and a clear focus on good customer outcomes in ‘the moments
that matter’. It is aligned with the people management and remuneration
processes to support a positive and strong risk culture through
appropriate incentive structures.
Training
Across the risk management function, a series of events and activities
have been undertaken to ‘bring alive’ the Group’s values and culture for
employees. This is supported by performance management processes
that hold individuals to account for poor behaviour and reward the
behaviour that supports our purpose, visions and values.
*unaudited
Challenge mechanisms
A simple decision making guide (called the “YES check”) has been
included within the Code of Conduct. It is a simple, intuitive set of five
questions, designed to ensure the values guide day-to-day decisions:
• Does what I am doing keep our customers and the Bank safe and
secure?
• Would customers and colleagues say I am acting with integrity?
• Am I happy with how this would be perceived on the outside?
• Is what I am doing meeting the standards of conduct required?
• In five years time would others see this as a good way to work?
Each question is a prompt to think about the situation and how it fits with
the Group’s values. It ensures that employees can think through
decisions that don’t have a clear answer, guiding the judgements behind
their decisions and actions.
Risk-based key performance indicators
The Group’s policy standards require all current Code Staff roles to use a
balanced scorecard approach to performance management. This ensures
recognition of the longer-term business requirements and a balance
between financial and non-financial metrics, including an evaluation of
adherence to internal controls and risk management. Since 2011, all
Code Staff roles have had specific risk objectives in their performance
plan.
Unvested awards are subject to clawback and may be reduced, or
forfeited in full, at the discretion of the Group Performance and
Remuneration Committee. For Code Staff roles, the Committee can apply
clawback if the company, business area and team, or the individual
subsequently incurs significant loss (either financial or reputational), or if
the Group as a whole suffers a material failure of risk management or
material downturn in its financial performance.
Awards to employees under the Group's long-term incentive plan are
subject to financial and operational measures and an underlying
requirement for effective risk management during the performance
period.
The Group Performance and Remuneration Committee has put in place a
Group-wide remuneration policy which is explicitly aligned with effective
risk management. Performance is a key input into the determining of
remuneration levels. Group and divisional plans and targets are aligned
with the risk appetite and the long-term interests of the Group, as
determined by the Board. These targets are the basis of Group Executive
members’ objectives, which are approved by the Group Performance and
Remuneration Committee. These objectives are then cascaded through
the divisions and functions.
There is significant focus on risk in performance assessment with all
executives and Code Staff receiving specific risk feedback through an
independent “360-degree” feedback process. As part of the line
manager’s assessment of individual performance divisional control
functions, including risk, provide independent input to the line manager.