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Operating expenses | 12 Months Ended
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Dec. 31, 2021
Operating expenses |
Operating expenses | 3 Operating expenses ​ Operating expenses are expenses NatWest Group incurs for operation of the business such as salaries, bonus awards, pension costs, depreciation and other administrative expenses. Operating expenses are expenses NatWest Group incurs in the running of the business such as all personnel expenditure (for example salaries, bonus awards, pension costs and social security costs), premises and equipment costs (that arise from the occupation of premises and the use of equipment), depreciation and amortisation and other administrative expenses. For accounting policy information see Accounting policies note 4. ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | 2021 |  | 2020 (1) |  | 2019 (1) |
Continuing operations | ​ | £m | ​ | £m | ​ | £m |
Salaries |  | 2,295 |  | 2,494 |  | 2,477 | ​
Bonus awards |  | 267 |  | 232 |  | 299 | ​
Temporary and contract costs | ​ | 240 | ​ | 258 | ​ | 401 | ​
Social security costs |  | 300 |  | 316 |  | 296 | ​
Pension costs | ​ | 354 | ​ | 340 | ​ | 301 | ​
- defined benefit schemes (see Note 5) |  | 215 |  | 215 |  | 188 | ​
- defined contribution schemes |  | 139 |  | 125 |  | 113 | ​
Other |  | 220 |  | 238 |  | 202 | ​
Staff costs |  | 3,676 |  | 3,878 |  | 3,976 | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Premises and equipment (2) |  | 1,133 |  | 1,222 |  | 1,258 | ​
UK bank levy (3) |  | 99 |  | 167 |  | 134 | ​
Depreciation and amortisation (4,5) |  | 923 |  | 913 |  | 1,218 | ​
Other administrative expenses (6) |  | 1,927 |  | 1,678 |  | 2,694 | ​
Administrative expenses |  | 4,082 |  | 3,980 |  | 5,304 | ​
​ | ​ | 7,758 | ​ | 7,858 | ​ | 9,280 | ​
​
(1) | Comparative results have been re-presented from those previously published to reclassify certain operations as discontinued operations as described in Note 8.
(2) | 2021 includes cost of £33 million including accelerated depreciation of £41 million (2020 - £144 million including £71 million accelerated depreciation; 2019 - £161 million including £40 million accelerated depreciation) in relation to the planned reduction of the property portfolio (2021 – freehold £3 million; leasehold £30 million; 2020 - freehold £1 million; leasehold £143 million; 2019 - freehold £4 million; leasehold £157 million).
(3) | 2019 includes a rebate of £31 million relating to prior periods.
(4) | 2021 includes a £58 million charge relating to the reduction in property portfolio, leasehold £48 million and freehold £10 million (2020 - £107 million charge, leasehold £86 million and freehold £21 million; 2019 - £287 million charge, leasehold £37 million and freehold £250 million).
(5) | Includes impairment of goodwill of £85 million.
(6) | Includes litigation and conduct costs, net of amounts recovered. Refer to Notes 21 and 27 for further details.
The average number of persons employed, rounded to the nearest hundred, during the year, excluding temporary staff,was 59,200 (2020 - 61,400;2019 - 64,200). The average number of temporary employees during 2021 was 2,500 (2020 - 3,200;2019 - 4,100). The number of persons employed at 31 December, excluding temporary staff, by reportable segment, was as follows: ​
​ | ​ | ​ | ​ | ​ | ​ | ​
Continuing operations |  | 2021 |  | 2020 |  | 2019
Retail Banking |  | 15,800 |  | 17,200 |  | 19,600
Private Banking |  | 1,900 |  | 1,900 |  | 1,700
Commercial Banking |  | 8,400 |  | 9,700 |  | 9,700
RBS International | ​ | 1,400 | ​ | 1,500 | ​ | 1,600
NatWest Markets |  | 1,600 |  | 2,100 |  | 5,000
Central items & other |  | 27,000 |  | 24,900 |  | 22,600
Ulster Bank RoI (1) | ​ | 1,700 | ​ | 1,900 | ​ | 2,000
Total |  | 57,800 |  | 59,200 |  | 62,200
​ | ​ | ​ | ​ | ​ | ​ | ​
UK |  | 40,600 |  | 42,500 |  | 44,600
USA |  | 300 |  | 300 |  | 400
India |  | 13,500 |  | 13,200 |  | 13,500
Poland | ​ | 1,400 | ​ | 1,200 | ​ | 1,300
Republic of Ireland | ​ | 1,200 | ​ | 1,400 | ​ | 1,500
Rest of the World |  | 800 |  | 600 |  | 900
Total |  | 57,800 |  | 59,200 |  | 62,200
​
(1) | Total number of persons employed in Ulster Bank RoI of 2,400 (2020 – 2,600; 2019 – 2,700) includes 700 people employed in discontinued operations at 31 December 2021 (2020 – 700; 2019 – 700).
3 Operating expenses continued ​ Share-based payments As described in the Remuneration report, NatWest Group grants share-based awards to employees principally on the following bases: ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Award plan |  | Eligible employees |  | Nature of award |  | Vesting conditions (1) |  | Settlement
Sharesave | ​ | UK, Channel Islands, Gibraltar, Isle of Man, Poland and India. | ​ | Option to buy shares under employee savings plan | ​ | Continuing employment or leavers in certain circumstances | ​ | 2022 to 2026
Deferred performance awards | ​ | All | ​ | Awards of ordinary shares and conditional shares | ​ | Continuing employment or leavers in certain circumstances | ​ | 2022 to 2028
Long-term incentives (2) | ​ | Senior employees | ​ | Awards of ordinary shares and conditional shares | ​ | Continuing employment or leavers in certain circumstances and/or satisfaction of the pre-vest assessment and underpins | ​ | 2022 to 2028
​
(1) | All awards have vesting conditions which may not be met.
(2) | Long-term incentives include buy-out awards offered to compensate certain new hires for the loss of forfeited awards from their previous employment. All awards are granted under the Employee Share Plan.
The fair value of Sharesave options granted in 2021 was determined using a pricing model that included: expected volatility of shares determined at the grant date based on historical volatility over a period of up to five years; expected option lives that equal the vesting period; expected dividends on equity shares; and risk-free interest rates determined from UK gilts with terms matching the expected lives of the options. The exercise price of options and the fair value on granting awards of fully paid shares is the average market price over the five trading days (three trading days for Sharesave) preceding grant date. When estimating the fair value of the award, the number of shares granted, and the prevailing market price (as defined on pages 142 of the NatWest Group 2021 Annual Report and Form 20-F Information included as Exhibit 15.2 to this Form 20-F) are used. The fair value of the award is recognised as services are provided over the vesting period. ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Sharesave | ​ | 2021 | ​ | 2020 | ​ | 2019
​ |  | Average |  | Shares |  | Average |  | Shares |  | Average |  | Shares
​ | ​ | exercise price | ​ | under option | ​ | exercise price | ​ | under option | ​ | exercise price | ​ | under option
​ | ​ | £ | ​ | (million) | ​ | £ | ​ | (million) | ​ | £ | ​ | (million)
At 1 January |  | 1.64 |  | 96 |  | 2.01 |  | 84 |  | 2.18 |  | 75
Granted |  | 1.80 |  | 24 |  | 1.12 |  | 35 |  | 1.78 |  | 25
Exercised |  | 1.76 |  | (10) |  | 1.83 |  | — |  | 2.83 |  | (4)
Cancelled |  | 2.02 |  | (15) |  | 2.20 |  | (23) |  | 2.25 |  | (12)
At 31 December |  | 1.61 |  | 95 |  | 1.64 |  | 96 |  | 2.01 |  | 84
​ Options are exercisable within six months of vesting; 6.0 million options were exercisable at 31 December 2021 ( 2020 - 6.3 million; 2019 - 3.2 million). The weighted average share price at the date of exercise of options was £2.19 (2020 - £1.57; 2019 - £2.49). At 31 December 2021, exercise prices ranged from £1.12 to £2.27 (2020 - £1.12 to £ 2.27; 2019 - £1.68 to £2.91) and the remaining average contractual life was 2.1 years (2020 - 2.3 years; 2019 - 2.7 years ). The fair value of options granted in 2021 was £ 17 million (2020 - £8 million; 2019 - £11 million). ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Deferred performance awards | ​ | 2021 | ​ | 2020 | ​ | 2019
​ |  | Value at |  | Shares |  | Value at |  | Shares |  | Value at |  | Shares
​ | ​ | grant | ​ | awarded | ​ | grant | ​ | awarded | ​ | grant | ​ | awarded
​ | ​ | £m | ​ | (million) | ​ | £m | ​ | (million) | ​ | £m | ​ | (million)
At 1 January |  | 169 |  | 77 |  | 196 |  | 76 |  | 233 |  | 92
Granted |  | 61 |  | 32 |  | 109 |  | 67 |  | 110 |  | 42
Forfeited |  | (10) |  | (5) |  | (5) |  | (2) |  | (10) |  | (4)
Vested |  | (88) |  | (39) |  | (131) |  | (64) |  | (137) |  | (54)
At 31 December |  | 132 |  | 65 |  | 169 |  | 77 |  | 196 |  | 76
​ ​ The awards granted in 2021 vest in equal tranches on their anniversaries, predominantly over three years. ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Long-term incentives | ​ | 2021 | ​ | 2020 | ​ | 2019
​ |  | Value at |  | Shares |  | Options |  | Value at |  | Shares |  | Options |  | Value at |  | Shares |  | Options
​ | ​ | grant | ​ | awarded | ​ | over shares | ​ | grant | ​ | awarded | ​ | over shares | ​ | grant | ​ | awarded | ​ | over shares
​ | ​ | £m | ​ | (million) | ​ | (million) | ​ | £m | ​ | (million) | ​ | (million) | ​ | £m | ​ | (million) | ​ | (million)
At 1 January |  | 50 |  | 24 |  | — |  | 63 |  | 25 |  | — |  | 85 |  | 32 |  | 2
Granted |  | 6 |  | 3 |  | — |  | 14 |  | 10 |  | — |  | 15 |  | 6 |  | —
Vested/exercised |  | (12) |  | (6) |  | — |  | (17) |  | (7) |  | — |  | (12) |  | (4) |  | —
Lapsed |  | — |  | — |  | — |  | (10) |  | (4) |  | — |  | (25) |  | (9) |  | (2)
At 31 December |  | 44 |  | 21 |  | — |  | 50 |  | 24 |  | — |  | 63 |  | 25 |  | —
​ The market value of awards vested/exercised in 2021 was £13 million (2020 - £ 13 million; 2019- £10 million). There are no vested options of shares exercisable up to 2022 (2020 - nil; 2019 - nil). ​ 3 Operating expenses continued Bonus awards The following tables analyse NatWest Group’s bonus awards for 2021. ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | 2021 | ​ | 2020 | ​ | Change |
​ |  | £m |  | £m |  | % |
Non-deferred cash awards (1) | ​ | 38 | ​ | 35 | ​ | 9 | %
Deferred cash awards |  | 214 |  | 111 |  | 93 | %
Deferred share awards |  | 49 |  | 60 |  | (18) | %
Total deferred bonus awards |  | 263 |  | 171 |  | 54 | %
Total bonus awards (2) |  | 301 |  | 206 |  | 46 | %
| ​ | ​ | ​ | ​ | ​ | ​ | ​
Bonus awards as a % of operating profit before tax (3) |  | 7 | % | (83) | % | ​ | ​
Proportion of bonus awards that are deferred |  | 87 | % | 83 | % | ​ | ​
of which | ​ | ​ | ​ | ​ | ​ | ​ | ​
- deferred cash awards |  | 81 | % | 65 | % | ​ | ​
- deferred share awards |  | 19 | % | 35 | % | ​ | ​
​
​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | 2021 |  | 2020 |  | 2019
Reconciliation of bonus awards to income statement charge | ​ | £m | ​ | £m | ​ | £m
Bonus awarded |  | 301 |  | 206 |  | 307
Less: deferral of charge for amounts awarded for current year |  | (99) |  | (77) |  | (110)
Income statement charge for amounts awarded in current year |  | 202 |  | 129 |  | 197
​ | ​ | ​ | ​ | ​ | ​ | ​
Add: current year charge for amounts deferred from prior years |  | 80 |  | 114 |  | 127
Less: forfeiture of amounts deferred from prior years |  | (15) |  | (11) |  | (25)
Income statement charge for amounts deferred from prior years |  | 65 |  | 103 |  | 102
​ | ​ | ​ | ​ | ​ | ​ | ​
Income statement charge for bonus awards (2) |  | 267 |  | 232 |  | 299
​
(1) | Non-deferred cash awards are limited to £2,000 for all employees.
(2) | Excludes other performance related compensation.
(3) | Operating profit before tax and bonus expense.
​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Actual | ​ | Expected
​ |  | ​ |  | ​ |  | ​ |  | ​ |  | 2023
​ | ​ | 2019 | ​ | 2020 | ​ | 2021 | ​ | 2022 | ​ | and beyond
Year in which income statement charge is expected to be taken for deferred bonus awards | ​ | £m | ​ | £m | ​ | £m | ​ | £m | ​ | £m
Bonus awards deferred from 2019 and earlier |  | 127 |  | 114 |  | 28 | ​ | 11 | ​ | 6
Bonus awards deferred from 2020 | ​ | — | ​ | — | ​ | 52 | ​ | 8 | ​ | 7
Less: forfeiture of amounts deferred from prior years |  | (25) |  | (11) |  | (15) | ​ | — | ​ | —
Bonus awards for 2021 deferred |  | — |  | — |  | — | ​ | 86 | ​ | 13
​ |  | 102 |  | 103 |  | 65 | ​ | 105 | ​ | 26
​

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