RBS 2013 Annual Report Download - page 77
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Directors’ Remuneration Policy
75
Illustration of the potential application of the remuneration policy
• Salary + Benefits + Pensions delivered in cash . The benefits include
standard benefit funding as outlined in the policy but exclude
exceptional items such as relocation allowances, the value of which
will be disclosed in the total remuneration table each year.
• Fixed share allowance = an allowance of 100% of salary, paid in
shares and released in equal tranches over a five year period.
• Target = Fixed remuneration and assuming payout of long-term
incentive vesting at 45% of maximum (135% of salary).
• Maximum = Fixed remuneration and assuming full payout of long-
term incentive vesting at 300% of salary.
• The graphs above illustrate the application of policy to executive
directors for the first full year as the Group Chief Executive will not
receive a fixed share allowance in 2014.
The charts shown above are for illustration only and do not take into
account any share price movement. Any value receivable in respect of
long-term incentive awards will depend on performance over the period
and the share price when the holding period comes to an end.
Shareholders views and their impact on remuneration policy
An extensive consultation is undertaken every year with major
shareholders including UKFI and other stakeholders on our remuneration
approach. The consultation process typically involves inviting our largest
shareholders to attend either one-to-one meetings or roundtable sessions
with relevant shareholder bodies. A range of topics are discussed
including intended remuneration policy for the year ahead and any
significant changes. The process takes place in sufficient time for
shareholder views to be considered prior to the Committee making any
final decisions on remuneration and variable pay awards. Details of
shareholder voting on the resolution to approve the last remuneration
report can be found in the annual report on remuneration.
In late 2013 and early 2014, meetings took place involving around 20
institutional shareholders and shareholder bodies representing a
substantial portion of the non-UKFI shareholding. The topics discussed
during the latest consultation included financial performance,
determination of pay outcomes for the 2013 performance year, the Board
changes, the impact of CRD IV and possible pay arrangements going
forward. Shareholders asked wide-ranging questions including the ability
to remain market competitive, the accountability review process, retaining
and motivating employees through periods of change and the use of
performance measures for long-term incentive awards.
The reaction to the consultation process was positive and allowed the
Committee to gain valuable insight into areas that shareholders were
likely to support and those areas of concern. There was general support
for the possible use of role-based allowances for the small number of
employees impacted by the cap imposed under CRD IV. Payment of any
allowances in arrears, with delivery in shares for more senior roles and
with deferral, were viewed as positive features. Many shareholders also
welcomed the discontinuation of annual bonus arrangements for
executive directors but stressed the need to ensure sufficient variable pay
was available for performance adjustment and clawback. The move to a
five year overall timeframe for future long-term incentive awards was also
viewed favourably. Overall, there was continuing support for simple and
transparent pay structures.
A number of shareholders cautioned that legal advice should be obtained
to confirm that the proposed pay arrangements complied with the
requirements of CRD IV. The Committee responded to these concerns by
obtaining independent legal advice. Another theme from shareholders
was that there should be a demonstrable reduction in remuneration to
reflect the benefits of pay certainty for the participants.
Some shareholders asked for the level of reduction in total compensation
opportunity and rationale to be clearly explained. As set out in this report,
annual bonus awards have been discontinued for executive directors. A
fixed share allowance will be introduced that will deliver up to 100% of
salary in shares to be released in equal tranches over a five year period.
The new structure results in a reduction of 16% of maximum
remuneration opportunity and still maintains alignment in shares and with
longer holding periods.
Shareholders continue to play a vital role in developing remuneration
practices that support the long-term interests of the business and the
Committee is grateful and greatly encouraged by their involvement in the
process.