RBS 2013 Annual Report Download - page 68
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Directors’ Remuneration Report
66
Annual Statement from the Chair of the Group Performance and Remuneration Committee
Penny Hughes
Dear Shareholder,
This year’s remuneration report is published at an important moment for RBS. Five years on from the company’s rescue,
RBS is substantially safer and smaller, has a new Group Chief Executive, and has embarked on a new strategy
positioning customers at its centre. In this changing environment, the complex challenges surrounding remuneration that
I have written about in this space for the last few years, have not gone away.
The Committee is tasked with making decisions on pay that encourage good service to our customers, are fair to all of
our employees, and are in the interests of all of our shareholders. These decisions are never easy and are rarely popular
in all quarters. Sometimes it would be easier for the Committee to make different decisions, prioritising the needs of one
stakeholder group over another. We understand why RBS is subject to public and political scrutiny and has an obligation
to the public that goes beyond that of our competitors. But truly living up to our responsibilities means we have to reject
easy options which are not in the long-term interests of our stakeholders.
2013 performance – a challenging year
Although now safer and more secure than it was five years ago, RBS is
still beset by issues that have their roots in the past. Our substantial loss
for 2013 arises primarily from the decision to remove more of the bad
assets from our balance sheet and make additional provisions for
conduct and litigation issues. It is a matter of great regret that it is against
this background that I have to make this report. I know shareholders had
hoped that losses like this would have been well behind RBS by now.
Those who served on the Executive Committee during the year did not
receive any bonus for 2013. Most of this team is relatively new, but this
was an important leadership issue.
Continuing pay reform
There has been a fundamental cultural shift in our approach to pay:
• Over the last four years alone, bonus pools have fallen by 58% at a
Group level and by 75% within the Markets division.
• The Group bonus pool has fallen between 2012 and 2013 in line
with the fall in pre-RCR operating profit.
• The underlying reduction is significantly greater when taking account
of the deduction made last year for LIBOR.
• The percentage of staff receiving no bonuses has increased over
the last year from 40% to 43% as we continue to target high
performers.
• In our UK retail business, incentive schemes for customer facing
staff have minimum standards relating to customer and risk
measures which must be met before any payments can be
considered.
• Performance related pay is linked to a combination of performance
measures covering financial and non-financial metrics.
Operating in markets where absolute and relative levels of pay are still
high, RBS has been a back-marker. But we do not and cannot operate in
a vacuum. Many of our employees have done good work this year to help
rebuild the company for the future. While pay in aggregate will continue to
remain at the lower end of current market practice, I firmly believe our
pay levels must remain competitive to attract and retain a high calibre of
staff. This is essential if we are to build a business of value for our
customers and our shareholders.
It is worth noting that bonuses and other variable pay arrangements are
standard practice for FTSE100 companies, not just banks. Research
indicates that 99% of executives in the FTSE100 at Executive Committee
level or above have a variable to fixed pay ratio that exceeds 1:1.
I know it is not always easy to accept, but if RBS is to thrive we must do
what it takes to attract and keep the people who will help us achieve our
goals. We think that the right positioning of the business is to be
commercial. While we are sensitive to public opinion, particularly given
our ownership structure, the ability to pay competitively is fundamental to
getting RBS to where we need it to be.