Shareholder advisory groups recommend investors reject Royal Bank of Scotland's new executive pay policy

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Investors Launch £4bn Compensation Claim Against The Royal Bank Of Scotland
Royal Bank of Scotland has its AGM on 11 May (Source: Getty)

Royal Bank of Scotland could come under pressure over its executive pay arrangements, with two shareholder advisory groups advising investors reject its remuneration policy.

The recommendations, seen by City A.M., come despite RBS slashing the maximum award sizes on offer for chief executive Ross McEwan and finance chief Ewen Stevenson.

Read more: RBS shares rise as it returns to profit for the first time in 18 months

The new proposals allow for McEwan to earn a long-term award of 175 per cent of his salary and Stevenson of 200 per cent, down from the previous level of 400 per cent for both. RBS does not pay out annual bonuses to senior execs.

Institutional Shareholder Services (ISS) said this was not “considered sufficient”, and advised investors to come out against the policy in this year’s binding vote.

ISS said that the reduction in bonuses available to McEwan and Stevenson was not enough to offset “uncertainty around how performance will be assessed”. The advisory body also feels the policy introduces a greater degree of certainty that bonuses will be awarded to execs.

Pensions and Investment Research Consultants (Pirc) is also advising shareholders to reject the policy.

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Pirc said the reduction in bonus opportunity for McEwan and Stevenson were welcome. But both ISS and Pirc were concerned by RBS plans to ditch pro-rating of long-term incentive awards for “good leavers”.

Under the new plans, which have been discussed with investors, executives will be in line for full, long-term awards even if they cut their time at the lender short. It is hoped this change, in the context of the maximum long-term awards on offer being reduced by 40 per cent, will simplify the system and motivate execs to work hard up to the end of their working period at RBS.

The bank said:

RBS is changing its remuneration structure to be simpler with greater long term alignment and significantly reduced maximum award levels.

The aim of the new construct is to encourage sustainable long-term performance, with executive directors having significant alignment in shares both during and after employment.

The shareholding requirements will rise significantly and, in line with the growing consensus on the need to restrain executive pay, the maximum long-term incentive award level will be reduced by up to 40 per cent.

The removal of time pro-rating enables the expected value of pay to be broadly maintained over their typical tenure.

Meanwhile, Glass Lewis, which is advising shareholders to approve the policy despite a few doubts, said it “harbours reservations” about the pro-rating removal policy.

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