RBS 2013 Annual Report Download - page 69
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Directors’ Remuneration Report
67
There is an understandable public focus on the highest paid specialist
talent at RBS. However, as a Committee, we are equally concerned
about pay for staff at all levels. We provide oversight and guidance on all
RBS remuneration arrangements. In 2014 we are directing a greater
proportion of our salary budget to our lower paid employees. We continue
to pay our permanent employees in the UK at or above the “Living Wage”
benchmarks (National and London) and intend to apply for full
accreditation.
Our remuneration policy promotes transparency and accountability; pay
is clawed back when things go wrong, and awards are suspended when
investigations are ongoing. Clawback is a powerful tool and we have put
it to use. This year we have suspended awards pending investigations
triggered by serious allegations of misconduct. It is important for the
company and the executives involved that discretionary awards are put
on hold until all the facts are clear.
CRD IV
Many of you will be aware that a “bonus cap” has been introduced under
the fourth European Capital Requirements Directive (CRD IV). Whilst the
actual regulation and setting of a hard cap is not what we would have
wished for, it is essentially aligned to our own actions to moderate pay
levels and reduce pay leverage. We will therefore seek to comply with the
spirit as well as the letter of the regulations.
We are considering whether to ask shareholders to approve a maximum
ratio of variable to fixed pay at 2:1, rather than the default ratio of 1:1, at
the 2014 AGM. As the legislation is now in force, we are reviewing how
best to structure remuneration arrangements that are both compliant and
aligned with shareholders’ interests. The Board will agree its final position
in light of emerging market practice and details of any proposals will be
contained in the Letter to Shareholders prior to the AGM.
New Share Plan
At the 2014 AGM we will seek approval for the RBS 2014 Employee
Share Plan. This will replace the Deferral Plan which expires in
December 2014 and the Long Term Incentive Plan. Further details will be
set out in the Letter to Shareholders.
Review of year and Group performance
Further progress was made in the run down of Non-Core during 2013.
Our balance sheet and capital levels indicate how far RBS has come in
building a safe and sustainable foundation. From a strategic point of view,
progress was also made in re-shaping the Markets business, selling a
further stake in Direct Line Group, agreeing a pre-IPO investment of the
Williams and Glyn branches and bringing forward the IPO of Citizens.
However, I won’t shy away from the fact that overall it’s been a tough
year for RBS in terms of financial performance. Results in certain
divisions have been disappointing and revenue growth is not what we
would like it to be at this point in our recovery.
The regulatory landscape and increasing capital requirements have an
impact on our returns to shareholders and, in turn, this must be reflected
in our returns to employees. The Committee considers all these factors
when determining appropriate reward levels.
Performance considerations for 2013
• Group Operating Profit, excluding the impact of RBS Capital
Resolution (RCR) of £2,520 million, a reduction of 15% on 2012.
• Loss before tax of £8,243 million, due in part to the impact of RCR
which will help to remove uncertainty associated with legacy issues.
• Markets division making strategic progress, staff costs are down
19% and RWAs are down 36%.
• Core Tier 1 capital ratio improved to 10.9% from 10.3% at the end of
2012.
• Reduction in Non-Core assets to £28 billion.
• RBS offered £58.5 billion of loans and facilities to UK businesses in
2013 of which £31.5 billion was to SMEs. RBS also helped UK
companies, universities and housing associations to raise £24.7
billion through bond issues in 2013.
• Employee engagement is strong and clear evidence that key values
are being embedded across the Group.
Decisions made on pay
• Full details of decisions for both current and former directors are set
out in this report.
• Ross McEwan’s salary on appointment as Group Chief Executive
represented a 17% reduction to his predecessor.
• In line with existing policy, Ross McEwan will receive a long-term
incentive award in March 2014.
• Nathan Bostock has announced his departure and all outstanding
share awards will lapse.
• Total compensation, both on an overall and per employee level, has
been reduced for 2013.
• Total variable compensation reduced again for 2013, down 15% at a
Group level and 17% for Markets compared to 2012. This includes a
£25 million reduction as part of the committed LIBOR related
actions.
• Total Group variable compensation as a percentage of operating
profit (pre-RCR and before variable compensation), a key ratio, has
remained at 19%.
• The proportion of deferred variable compensation delivered in
shares has increased significantly for 2013, representing 63% for
Group and 81% for Markets. Further details on the bonus pool can
be found in Note 3 to the accounts on page 397.
• Incentive awards continue to be targeted towards high performers.
43% of employees who are eligible will not receive a bonus.