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Operating expenses | 12 Months Ended
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Dec. 31, 2022
Operating expenses |
Operating expenses | 3 Operating expenses Operating expenses are expenses NatWest Group incurs in the running of the business such as all staff costs (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 3.3, 3.4 and 3.5. ​
​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | 2022 |  | 2021 |  | 2020
Continuing operations | ​ | £m | ​ | £m | ​ | £m
Salaries |  | 2,250 |  | 2,295 |  | 2,494
Bonus awards |  | 334 |  | 267 |  | 232
Temporary and contract costs | ​ | 234 | ​ | 240 | ​ | 258
Social security costs |  | 328 |  | 300 |  | 316
Pension costs | ​ | 363 | ​ | 354 | ​ | 340
- defined benefit schemes (see Note 5) |  | 205 |  | 215 |  | 215
- defined contribution schemes |  | 158 |  | 139 |  | 125
Other |  | 207 |  | 220 |  | 238
Staff costs |  | 3,716 |  | 3,676 |  | 3,878
​ | ​ | ​ | ​ | ​ | ​ | ​
Premises and equipment |  | 1,112 |  | 1,133 |  | 1,222
UK bank levy |  | 101 |  | 99 |  | 167
Depreciation and amortisation (1,2) |  | 833 |  | 923 |  | 913
Other administrative expenses (3) |  | 1,925 |  | 1,927 |  | 1,678
Administrative expenses |  | 3,971 |  | 4,082 |  | 3,980
​ | ​ | 7,687 | ​ | 7,758 | ​ | 7,858
​
(1) | Include depreciation on right of use assets of £119 million (2021 - £167 million; 2020 - £209 million).
(2) | 2021 includes impairment of goodwill of £85 million.
(3) | Includes litigation and conduct costs, net of amounts recovered. Refer to Note 21 for further details.
The average number of persons employed, rounded to the nearest hundred, during the year, excluding temporary staff,was 60,000 (2021- 59,200; 2020 - 61,400). The average number of temporary employees during 2022 was 2,500 (2021 - 2,500; 2020 – 3,200). The number of persons employed at 31 December, excluding temporary staff, by reportable segment, was as follows: ​
​ | ​ | ​ | ​ | ​ | ​ | ​
Continuing operations |  | 2022 |  | 2021 |  | 2020
Retail Banking |  | 14,800 |  | 15,800 |  | 17,200
Private Banking |  | 2,100 |  | 1,900 |  | 1,900
Commercial & Institutional |  | 12,200 |  | 11,400 |  | 13,300
Central items & other (1) |  | 31,900 |  | 28,700 |  | 26,800
Total |  | 61,000 |  | 57,800 |  | 59,200
​ | ​ | ​ | ​ | ​ | ​ | ​
UK |  | 41,200 |  | 40,600 |  | 42,500
USA |  | 300 |  | 300 |  | 300
India |  | 15,700 |  | 13,500 |  | 13,200
Poland | ​ | 1,500 | ​ | 1,400 | ​ | 1,200
Republic of Ireland | ​ | 1,400 | ​ | 1,200 | ​ | 1,400
Rest of the World |  | 900 |  | 800 |  | 600
Total |  | 61,000 |  | 57,800 |  | 59,200
​
(1) | Central items & other includes Ulster Bank RoI. Total number of persons employed in Ulster Bank RoI of 2,200 (2021 – 2,400; 2020 – 2,600) includes 400 people employed in discontinued operations at 31 December 2022 (2021 – 700; 2020 – 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 | ​ | 2023 to 2027
Deferred performance awards | ​ | All | ​ | Awards of ordinary shares and conditional shares | ​ | Continuing employment or leavers in certain circumstances | ​ | 2023 to 2030
Long-term incentives (2) (3) | ​ | 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 | ​ | 2023 to 2029
​
(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.
(3) | The existing Long-term incentive scheme has been closed to new awards and members as at 31 December 2022. The scheme will be replaced by a new Restricted share plan scheme with similar granting and vesting conditions. No awards have been granted at the end of the reporting period.
The fair value of Sharesave options granted in 2022 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; estimated dividend yield 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 page 135 of Exhibit 15.2 are used. The fair value of the award is recognised as services are provided over the vesting period. ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Sharesave | ​ | 2022 | ​ | 2021 | ​ | 2020
​ |  | Average |  | Shares |  | Average |  | Shares |  | Average |  | Shares
​ | ​ | exercise price | ​ | under option | ​ | exercise price | ​ | under option | ​ | exercise price | ​ | under option
​ | ​ | £ | ​ | (million) | ​ | £ | ​ | (million) | ​ | £ | ​ | (million)
At 1 January |  | 1.61 |  | 95 |  | 1.64 |  | 96 |  | 2.01 |  | 84
Granted |  | 1.86 |  | 25 |  | 1.80 |  | 24 |  | 1.12 |  | 35
Exercised |  | 1.88 |  | (15) |  | 1.76 |  | (10) |  | 1.83 |  | —
Cancelled |  | 1.60 |  | (6) |  | 2.02 |  | (15) |  | 2.20 |  | (23)
At 31 December |  | 1.63 |  | 99 |  | 1.61 |  | 95 |  | 1.64 |  | 96
​ Options are exercisable within six months of vesting; 5.1 million options were exercisable at 31 December 2022 ( 2021 - 6.0 million; 2020 - 6.3 million). The weighted average share price at the date of exercise of options was £2.59 (2021 - £2.19; 2020 - £1.57). At 31 December 2022, exercise prices ranged from £1.12 to £2.27 (2021 - £1.12 to £ 2.27; 2020 - £1.12 to £2.27) and the remaining average contractual life was 2 years (2021 - 2.1 years; 2020 - 2.3 years ). The fair value of options granted in 2022 was £22.1 million (2021 - £17 million; 2020 - £8 million). ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Deferred performance awards | ​ | 2022 | ​ | 2021 | ​ | 2020
​ |  | Value at |  | Shares |  | Value at |  | Shares |  | Value at |  | Shares
​ | ​ | grant | ​ | awarded | ​ | grant | ​ | awarded | ​ | grant | ​ | awarded
​ | ​ | £m | ​ | (million) | ​ | £m | ​ | (million) | ​ | £m | ​ | (million)
At 1 January |  | 132 |  | 65 |  | 169 |  | 77 |  | 196 |  | 76
Granted |  | 46 |  | 20 |  | 61 |  | 32 |  | 109 |  | 67
Forfeited |  | (4) |  | (2) |  | (10) |  | (5) |  | (5) |  | (2)
Vested |  | (81) |  | (37) |  | (88) |  | (39) |  | (131) |  | (64)
At 31 December |  | 93 |  | 46 |  | 132 |  | 65 |  | 169 |  | 77
​ The awards granted in 2022 vest in equal tranches on their anniversaries, predominantly over three years. ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Long-term incentives | ​ | 2022 | ​ | 2021 | ​ | 2020
​ |  | Value at |  | Shares |  | Value at |  | Shares |  | Value at |  | Shares
​ | ​ | grant | ​ | awarded | ​ | grant | ​ | awarded | ​ | grant | ​ | awarded
​ | ​ | £m | ​ | (million) | ​ | £m | ​ | (million) | ​ | £m | ​ | (million)
At 1 January |  | 44 |  | 21 |  | 50 |  | 24 |  | 63 |  | 25
Granted |  | 16 |  | 7 |  | 6 |  | 3 |  | 14 |  | 10
Vested/exercised |  | (10) |  | (4) |  | (12) |  | (6) |  | (17) |  | (7)
Lapsed |  | (1) |  | (1) |  | — |  | — |  | (10) |  | (4)
At 31 December |  | 49 |  | 23 |  | 44 |  | 21 |  | 50 |  | 24
​ The market value of awards vested/exercised in 2022 was £11.7 million (2021 - £13 million; 2020- £13 million). ​ 3 Operating expenses continued Bonus awards The following tables analyse NatWest Group’s bonus awards for 2022. ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | 2022 | ​ | 2021 | ​ | Change |
​ |  | £m |  | £m |  | % |
Non-deferred cash awards (1) | ​ | 40 | ​ | 38 | ​ | 5 | %
Deferred cash awards |  | 270 |  | 214 |  | 26 | %
Deferred share awards |  | 60 |  | 49 |  | 22 | %
Total deferred bonus awards |  | 330 |  | 263 |  | 25 | %
Total bonus awards (2) |  | 370 |  | 301 |  | 23 | %
| ​ | ​ | ​ | ​ | ​ | ​ | ​
Bonus awards as a % of operating profit before tax (3) |  | 7 | % | 7 | % | ​ | ​
Proportion of bonus awards that are deferred |  | 89 | % | 87 | % | ​ | ​
of which | ​ | ​ | ​ | ​ | ​ | ​ | ​
- deferred cash awards |  | 82 | % | 81 | % | ​ | ​
- deferred share awards |  | 18 | % | 19 | % | ​ | ​
​
​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | 2022 |  | 2021 |  | 2020
Reconciliation of bonus awards to income statement charge | ​ | £m | ​ | £m | ​ | £m
Bonus awarded |  | 370 |  | 301 |  | 206
Less: deferral of charge for amounts awarded for current year |  | (127) |  | (99) |  | (77)
Income statement charge for amounts awarded in current year |  | 243 |  | 202 |  | 129
​ | ​ | ​ | ​ | ​ | ​ | ​
Add: current year charge for amounts deferred from prior years |  | 94 |  | 80 |  | 114
Less: forfeiture of amounts deferred from prior years |  | (3) |  | (15) |  | (11)
Income statement charge for amounts deferred from prior years |  | 91 |  | 65 |  | 103
​ | ​ | ​ | ​ | ​ | ​ | ​
Income statement charge for bonus awards (2) |  | 334 |  | 267 |  | 232
​
(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
​ |  | ​ |  | ​ |  | ​ |  | ​ |  | 2024
​ | ​ | 2020 | ​ | 2021 | ​ | 2022 | ​ | 2023 | ​ | 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 2020 and earlier |  | 114 |  | 80 |  | 19 | ​ | 8 | ​ | 4
Bonus awards deferred from 2021 | ​ | — | ​ | — | ​ | 75 | ​ | 8 | ​ | 8
Less: forfeiture of amounts deferred from prior years |  | (11) |  | (15) |  | (3) | ​ | — | ​ | —
Bonus awards for 2022 deferred |  | — |  | — |  | — | ​ | 105 | ​ | 22
​ |  | 103 |  | 65 |  | 91 | ​ | 121 | ​ | 34
​

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