Remuneration and Bonuses

 

We know that remuneration in the financial services sector is a sensitive issue for shareholders and society in general following the unprecedented turmoil across the sector in 2008 and 2009. The focus has been on balancing shareholders’ views on remuneration with the need to attract, incentivise and retain the right people.

 

We work closely with the FSA and our major shareholders to ensure that our remuneration structure is aligned to prudent risk management.


Risk management forms one of the five principal criteria within the Group’s balanced scorecard on which individual staff performance is judged. All employees’ – including business executives’ – performance is assessed using the same balanced scorecard template. Business executives have specific risk management objectives and incentive schemes take account of performance against these.

 

The approximate make-up of the main components of our package for Executive Directors on an expected value basis is shown below:

 

Remuneration chart

The ratio for the CEO is 40/32/28

 

Executive Remuneration

 

Our approach to remuneration has been developed with input from both our shareholders and our regulators. We consulted extensively with them during 2010 on our executive remuneration strategy. We carefully reflected on the feedback we received and this directly influenced our approach. Our decision-making focused on balancing shareholders’ views on remuneration with what we believe is right for our business. We decided that remuneration for 2010 should demonstrate restraint, rather than fully reflect improved business performance, and that we should take a broadly similar approach for 2011. Our Remuneration Committee worked closely with our Group Risk Committee to reach its conclusions:

 

  • There were no salary increases made to Executive Directors in 2010.
  • Any bonuses paid in respect of performance in 2010 have been rigorously tested against targets – which include risk-adjusted and non-financial measures, including customers, people and risk, to promote a long-term focus within the senior management team.
  • To ensure a prudent approach is applied to bonuses, we have exercised downward discretion on the annual bonuses and made lower payments than if they were calculated purely on a formulaic basis.
  • Furthermore, 100 per cent of any bonus award will be deferred into shares and will not be released until March 2013 at the earliest. This will be subject to malus* if performance is not sustained.
  • Awards made in March 2010 under the Long Term Incentive Plan were below 2008 levels by up to 100 per cent of salary and lower than the market practice for long-term incentives in our sector.

Our remuneration framework needs to enable us to attract, incentivise and retain the right people. We continue to have concerns that our executive remuneration framework is uncompetitive and this will be subject to ongoing review. Remuneration will continue to be linked to effective risk management and the delivery of financial and non-financial targets.

 

Employee reward

 

We offer employees a competitive reward package that underpins a culture of performance and strikes the right balance between reward, risk management and performance. At the end of every year, 100 per cent of employees are given a performance rating based on their overall contribution to the success of the business, as set out in their balanced scorecards. They are assessed by a combination of how they have performed against their objectives, and how they have performed against our values and behaviours. This performance rating is then directly linked to how each employee is rewarded.

 

Base salaries form a large proportion of employees’ reward. We also offer incentive programmes and discretionary bonus schemes which reflect the risk profile of our business. These include a mix of fixed salary, cash and awards of shares.

 

We are primarily a retail and commercial bank. This means that the payout under our Group bonus schemes for 2010 is a small percentage of overall revenues. Although the Group’s profitability increased, our total compensation for 2010 is lower than that for 2009.

 

In addition, employees are offered a wide choice of benefits through our flexible benefits programme. Employees can choose from a wide range of cost-effective options that can be tailored to their specific needs. Benefits include medical and life assurance, additional pension and holidays and retail and childcare vouchers. Around 77 per cent of employees across the Group take up flexible benefits.

 

* Performance-based adjustment of unvested awards