The Royal Bank of Scotland has today announced a new long-term incentive scheme for directors of the company which could result in chief executive Stephen Hester receiving up to £4.9 million. Despite the fact that Royal Bank of Scotland is majority owned by UK taxpayers there is a feeling that unless the bank actually pays bonuses to members of staff then the calibre of staff staying with the company and the calibre of staff the company is able to attract could diminish.

The new long-term incentive scheme will replace two existing schemes and has three vital components which address various issues discussed with institutional shareholders. Half of the bonus award will be linked to the company's economic profit in 2012 which will take into account the cost of capital for the company. A further quarter of the proposed profit scheme will relate to how well the bank performs in share price terms against its banking peers. The final quarter will relate to the full entitlement being made available if the shares in the market are valued at 75p or above.

It is interesting to see that the company has listened to institutional shareholders and the government and is looking to introduce what many believe is one of the fairest long-term incentive schemes available today.

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