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Royal Bank of Scotland begins work on new incentive plan

The Royal Bank of Scotland, which has been under enormous pressure regarding potential bonus payments, has today instigated a number of meetings with institutional shareholders to revamp its recently announced long-term incentive plan. There is hope that the two parties can come to an acceptable arrangement which would both incentivise employees at Royal Bank of Scotland and also ensure that bonus payments reflect the overall health of the company.

Over the last few years the main measurement of any bonus/incentive program has been the share price of the underlying company. However, as we saw when the credit crunch began, we need to take into account the risk profile of the underlying company because ultimately just prior to the credit crunch the Royal Bank of Scotland was performing very well and then suddenly hit a brick wall. So what elements will be introduced to the long-term incentive plan?

While the share price will still play a role in awarding bonuses and incentives, because it does reflect the underlying view of investors, the Royal Bank of Scotland's remuneration committee will also take into account the risk profile of the bank. Quite how this would work is unclear at the moment but ultimately the hope is that a more stable long-term operation will emerge with a more controlled risk profile and less dependence upon any one area of finance.

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