Royal Bank of Scotland Group (LON:RBS) said it will reduce the maximum long-term incentive plan by up to 40% amid calls by investors to restrain executive pay as lender continues to overhaul its business.
At the annual general meeting today, the bank also announced that shareholding requirements for executive directors would rise from 240% to 400% of salary for the chief executive and from 125% to 250% for the salary of the chief financial officer.
RBS said it was seeking to align pay more closely to good behaviour or performance and that its remuneration policies had become too complex in the past few years.
"The time is right for a new, simpler approach, developed specifically to align with RBS’s culture and our thinking on pay," Sandy Crombie, the bank's senior independent director, said in a speech to be delivered at the bank's annual general meeting in Edinburgh.
Crombie said there will be a single long-term incentive, with no annual bonus. "The plan incentivises executives to deliver performance against targets in the year prior to grant, over the three years prior to vesting, and then to continue increasing the share price. Shares will be released between four and eight years following grant."
The news comes after shareholders were advised to vote against the 72%-state owned bank's reumeration policy. ISS, a proxy adviser to many large shareholders, said investors should reject the policy because of long-term incentive plans that would make it easier to reward executives.
Another proxy adviser, Pirc, also recommended shareholders vote against the pay policy.
RBS chairman defends legal costs
The calls to crack down on executive pay come as the bank continues to battle restructuring costs and conduct fines resulting from its years of over-expansion leading into the 2008 financial crash.
Last month in its first quarter results, the bank said restructuring costs were £577mln, an increase of £339mln compared with Q1 2016, while litigation and conduct costs came to £54mln.
RBS is being sued by shareholders for allegedly misleading them over its true financial woes during a £12bn rights issue in 2008, which preceded the government's £45.5bn bailout. Legal costs related to the lawsuit were estimated at £6.5mln last year.
Chairman Howard Davies defended the bank on critcism from several politicians on the costs at the annual meeting. "The costs we are having to meet are high because of the extraordinary breadth and complexity of the case," he told shareholders.
“And it is normal practice under company law, and indeed it is a legal obligation for the bank, that directors should be indemnified in relation to any third party civil legal action arising from their tenure at the bank."
Earlier, former Business Secretary Sir Vince Cable said that the legal costs were "obscene" and that taxpayers were having to fund the lawsuit, which will see former chief executive Fred Goodwin take the witness stand in court on 8 June.
READ: Taxpayers are funding hefty legal costs at RBS, says Sir Vince Cable
In a column for City AM, published today, he said he "always thought Fred Goodwin should see the inside of the court room" and that much of the public cynicism about the government, regulators and bankers stems from the fact that those who did most of the damage during the 2008-09 financial crisis had gone unpunished.
RBS to mull over plans for Brexit and Scottish referendum...
Davies said it believes RBS will be less affected by Brexit than many of its peers and it will be "a while before we see the implications for future financial regulation" as negotiations for the UK's withdrawal will take two years.
“Our aim is to ensure continuity of service for our EU customers and we are actively exploring options to allow us to do so.”
He added that one potential outcome of the vote to leave the EU is that Scotland will have a second referendum.
“Before the last referendum, we said that RBS would continue its support for Scotland but would move its registered office to London.
“If there is a second referendum we will keep you informed of any contingency plans we might put in place.”