RBS unveils shake-up of executive bonus plan

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Royal Bank of Scotland (RBS) unveiled a revamped executive bonus plan last night in a bid to placate critics who said the original targets were too easy for executives to reach.

RBS's chief executive, Stephen Hester, will now need the bank's share price to exceed 57.5p to be issued shares under the plan. His package could pay him a maximum of £9.6m over three years. However, for Mr Hester to receive his maximum bonus the shares would have to hit 77.5p, compared with the previous target of 75p.

The revamped plan will also look at more than just the bank's share price. Some 50 per cent of the bonus will be assessed on the company's "economic profit", with 25 per cent based on the bank's "total shareholder return", which includes dividends, and a further 25 per cent on "relative total shareholder return", which also considers the performance of RBS in relation to other banks.

In making any bonus award, the bank's risk management and achievement of goals set out in its strategic plan will also be considered, RBS indicated yesterday.

The issue of Mr Hester's package has been causing huge controversy and he waived his bonus this year in common with the bosses of Barclays and Lloyds. The HSBC chief executive, Michael Geoghegan, said he would donate his to charity.

Sir Philip Hampton, the chairman of RBS, caused a stir in a recent interview with the BBC when he described the pay packages earned by bankers as "astonishingly high". However, Sir Philip said they were necessary to stop executives from jumping ship.

Mr Hester was appointed to replace Sir Fred Goodwin and has been charged with leading a turnaround of RBS, which has had billions of pounds of state aid.