RBS 2013 Annual Report Download - page 86
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Annual report on remuneration
84
LTIP awards granted in 2014 – Performance criteria
In line with previous practice, awards granted to executive directors in
March 2014 will be subject to four equally weighted performance
categories, each of which can vest up to 100% of base salary subject to
an overall cap of 300% of salary. The performance targets have been
reviewed by the Committee and reflect the outcome of the Group’s
strategic review. In future years, long-term incentive awards will be made
under the RBS 2014 Employee Share Plan on the basis of equally
stretching measures following consultation with major shareholders and
disclosed in the annual report on remuneration. A minimum three year
performance period will apply. Any awards that vest will be subject to a
minimum six month retention period in line with the PRA Remuneration
Code.
Economic profit (25%)
The Economic Profit measure will be based on the ‘go-forward’ RBS
business to align with the long-term future and earnings for the business.
Economic Profit, being a risk-adjusted financial measure, is consistent
with the PRA Code and also provides a balance between measuring
growth and the cost of capital employed in delivering that growth.
Economic Profit is defined as Operating Profit after Tax and preference
share charges less attributed equity multiplied by the cost of equity,
where
• Operating Profit after Tax is Operating Profit taxed at a standard tax
rate.
• Attributed Equity is defined as equity allocated to the businesses,
calculated as a function of the businesses risk-weighted asset base.
• Current Cost of Equity is 11.0%, which is subject to review at least
annually.
Details of the actual targets, and performance against these, will be
disclosed retrospectively once the awards vest.
Relative Total Shareholder Return (25%)
The relative TSR measure provides a direct connection between
executive directors’ awards and relative performance delivered to
shareholders. The measure compares performance against a group of
comparator banks. The comparator group has been changed for the 2014
awards to be more in line with the new strategic direction of RBS. This
has involved removing from the comparator group non-European firms,
which in particular reduces the exposure of the peer group to US and
Markets activity.
Relative TSR Comparator Group
Weighting
1 Barclays
2 Lloyds Banking Group
200%
3 HSBC
4 Standard Chartered
100%
5 to 13
BBVA, BNP Paribas, Credit Agricole, Credit Suisse
Group, Deutsche Bank, Santander, Societe Generale,
UBS, Unicredito
50%
• 20% of the award will vest if TSR is at the median of the companies
in the comparator group
• 100% of the award will vest if TSR is at the upper quartile of the
companies in the comparator group
Safe & Secure Bank (25%)
The Safe & Secure Bank measures have a particular focus on risk
reduction and the building of a safer, sustainable franchise. The key
measures in this category are Core Tier 1 ratio and Cost Income ratio.
Customers & People (25%)
These measures reward management for building a customer-focussed
franchise with strength in terms of efficiency, reputation and the
engagement of employees. Net Promoter Score will be used as the
primary bank-wide measure for the improvement in customer service,
measured versus each segment’s defined peer group. Employee
engagement will be measured against the Global Financial Services
norm.
Performance measures and weightings
Safe & Secure Bank
measures (25%)
Core Tier 1 ratio (12.5%)
Cost:Income ratio (12.5%)
Customers & People
measures (25%)
Net Promoter Score (12.5%)
Employee Engagement Index (12.5%)
Commentary will be provided on an annual basis in relation to progress
against the targets, where these are not commercially sensitive.
Target ranges will be set for each measure, and will determine vesting,
although the overall vesting under the Safe & Secure Bank and
Customers & People categories will be qualified by Group Performance
and Remuneration Committee discretion taking into account changes in
circumstances over the performance period, the margin by which
individual targets have been missed or exceeded, and any other relevant
factors.
Risk underpin and clawback
The Committee will also review financial and operational performance
against the business strategy and risk performance prior to agreeing
vesting of awards. In assessing this, the Committee will be advised
independently by the Board Risk Committee. If the Committee considers
that the vesting outcome calibrated in line with the performance
conditions outlined above does not reflect underlying financial results or if
the Committee is not satisfied that conduct and risk management during
the performance period has been effective, then the terms of the awards
allow for an underpin to be used to reduce vesting of an award, or to
allow the award to lapse in its entirety. All awards are subject to
clawback.