The pay decision is based on the policies outlined in the RBS 2010 Remuneration Report which was published following extensive consultation and approved at the Annual General Meeting by 99.2% of shareholders, including UK Financial Investments ("UKFI").
It is the Board's view that the decisions announced today recognise tangible achievement in the business and protect the interest of our shareholders, including of course the UK taxpayer.
The key decisions are as follows:
- The Board has decided to allocate Stephen Hester a 2011 annual performance award of 3.6 million shares (or 60%) from the Share Bank award set aside for him in 2011. This represents £963,000 based on the closing price on Wednesday 25 January 2012 (26.75p) when the decision was taken. The award will be made entirely in shares that are deferred and subject to holding conditions that mean that their full value cannot be received until late 2014. Only then can their tangible value be established. This ensures complete alignment of the Chief Executive's interests with those of our shareholders
- The award for 2011 reflects the substantial progress in making RBS safer, rebuilding performance in many businesses and improving customer service and support. Performance was judged against objectives agreed at the start of the year. The reduction from the initial Share Bank award reflects those areas where financial and business objectives have not been fully met. The value of the Share Bank award has also reduced in 2011 reflecting share price decline
- Stephen Hester's salary and related benefits remain unchanged from those put in place when he joined RBS in 2008
- The Board do not expect his Long Term Incentive Plan (LTIP) award maturing in 2012 to meet its performance conditions based on the current share price. This would mean a zero value
- For performance year 2012 Share Bank and LTIP arrangements will continue in line with the policy set out in the 2010 Remuneration Report which received overwhelming support from shareholders
Commenting on the decision RBS Group Chairman, Sir Philip Hampton, said:
"The Board is aware of the difficulties in trying to reconcile the competing objectives of all our stakeholders. This is especially true on the issue of pay. Stephen Hester's pay award reflects progress in the categories agreed with our shareholders as set out in the Remuneration Report. His pay is strongly geared to the recovery of RBS, which he was recruited to turn around, having played no part in its collapse. The priority is to re-shape a business that was far too big and far too risky, reducing legacy losses whilst improving performance in the Group's strong core businesses. It is a very large, complex and challenging corporate restructuring task. A safer and more valuable RBS is in the interests of our customers, shareholders and the UK economy and we are progressing well to towards this goal under the leadership of Stephen Hester."
Notes to Editors:
Since 2008, RBS has made substantial progress in rebuilding the Bank. Based on published results to 30th September 2011:
- All core businesses are now profitable other than Ulster Bank. Performance of our core business has improved to levels comparable with peers. The Board bench-marks the performance of each business area carefully
- RBS lent more than £68 billion to UK companies in the nine months to September 2011, including over 40p in every £1 lent to small businesses in the UK compared with a much lower customer market share
- RBS's balance sheet has been reduced by more than £600 billion since 2008. The Non-Core run-off is significantly ahead of original schedule with total non core assets now under £100 billion
- The Bank's extensive disposal programme is on track despite difficult market conditions and high execution risk
- £32 billion in pre-impairment profits have been generated in the core bank since 2009. These profits are being used to fund impairment losses as we work through this loss-making phase of our restructuring
- Funding and liquidity position has strengthened substantially, despite difficult markets – with capital ratios, loan to deposit ratios significantly strengthened and reliance on short term wholesale funding reduced
- Share price is significantly higher than the 9p level at the start of the strategic plan period (January 2009)
- Action has been taken to adjust strategy where needed in light of new economic and regulatory realities
- New Risk appetite framework has been embedded
- Significant improvements have been made in people management and engagement levels under the leadership team since 2009