RBS 2013 Annual Report Download - page 91
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Other Remuneration Disclosures
89
How risk is reflected in our remuneration process
The RBS remuneration policy explicitly aligns remuneration with effective
risk management. Focus on risk is achieved through clear risk input into
objectives, performance reviews, the determination of variable pools and
incentive plan design as well as the application of clawback. The
Committee is supported in this by the Group Audit Committee, the Board
Risk Committee and the Group’s risk management function.
A robust process is used to assess risk performance. A range of
measures are considered, specifically the overall Risk Profile, Credit,
Regulatory Risk & Conduct Risk, Operational Risk, Enterprise Risk and
Market Risk. The steps we take to ensure appropriate and thorough risk
adjustment are also fully disclosed and discussed with the PRA and the
FCA.
Variable pay pool determination
The process for determining variable pools is discretionary, to avoid the
unintended consequences of formulaic systems. However, the
Committee's discretion is applied within a structured framework which
starts with an assessment of risk adjusted financial performance
measured against budget, prior year capital position and long-term
strategic plans. This analysis is used to adjust for performance and then
consider outcomes in the context of competitive variable pay funding
levels.
Risk is taken into account in the performance assessment through a
thorough risk analysis carried out by the Group’s risk management
function to a pre-agreed framework. Performance assessments may be
adjusted in situations where risk performance is outside risk appetite or
strategic plans. Financial and non-financial performance factors
(including risk) are taken into account in developing a final variable pay
proposal. This decision also allows for considerations of market
competitiveness and franchise protection.
Variable pay proposals are reviewed in the context of key compensation
framework ratios including total compensation to revenue, total
compensation to pre-compensation profit, variable pay to pre-variable
pay profit and variable pool to pre-variable pool economic profit. These
ratios help to ensure appropriate sharing of value between employees
and shareholders and aim to provide transparency.
Finally, variable pay proposals are reviewed against our capital adequacy
framework to ensure that regulatory requirements are met.
Accountability review process
Our Accountability Review process is an important tool in how we
manage remuneration and manage adjustments to remuneration.
A summary of the accountability review process is as follows:
• Exists to enable RBS to respond in instances where current and/or
new information would change the annual bonus and/or LTIP
decisions made in previous years, and/or the decisions to be made
in the current year.
• The process for review assessments (which consider material risk
management, control and general policy breach failures,
accountability for those events and appropriate action against
individuals) is operated across divisions and functions.
• Divisional reviews are undertaken on a quarterly basis.
• Decisions must take into account not only any financial losses, but
also behavioural issues and reputational or internal costs.
• Clawback may be up to 100% of unvested awards and can be
applied regardless of whether or not disciplinary action has been
undertaken.
• A key principle is that clawback quantum should not be formulaic.
• Collective responsibility may be considered where a committee or
group of employees are deemed to have not appropriately
discharged their duties.
How have we applied this in practice?
Variable pay is subject to deferral allowing the Committee scope to apply
clawback. The accountability review process is fully embedded and is
operated throughout the year. During 2013 a number of issues and
events were considered under the accountability review framework.
The outcomes for the 2013 performance year cover a range of actions
and have included: forfeiture of unvested awards through clawback;
reduction of current year variable pay awards; dismissal; and suspended
vesting pending further investigation. The Board Risk Committee
concluded that all known key material events had been considered.
The RBS 2014 Employee Share Plan, subject to approval at the 2014
AGM, will allow RBS to apply post-vesting clawback to future awards.
The policy for any post-vesting clawback will be considered in light of
emerging regulatory requirements and shareholder best practice.
Remuneration Code
As part of the annual remuneration governance process we provide
details of our approach to pay and how we comply with the Remuneration
Code to the PRA and FCA. As in previous years we have received the
required regulatory confirmation in order to conclude our year end
remuneration process.