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Operating expenses | 12 Months Ended
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Dec. 31, 2023
Operating expenses |
Operating expenses | 3 Operating expenses ​
Operating expenses are expenses NatWest Group incurs in the running of its 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 refer to Accounting policies 3.3, 3.4 and 3.5.
​
​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | 2023 |  | 2022 |  | 2021
Continuing operations | ​ | £m | ​ | £m | ​ | £m
Salaries |  | 2,483 |  | 2,250 |  | 2,295
Bonus awards |  | 353 |  | 334 |  | 267
Temporary and contract costs | ​ | 199 | ​ | 234 | ​ | 240
Social security costs |  | 352 |  | 328 |  | 300
Pension costs | ​ | 313 | ​ | 363 | ​ | 354
- defined benefit schemes (Note 5) |  | 122 |  | 205 |  | 215
- defined contribution schemes |  | 191 |  | 158 |  | 139
Other |  | 201 |  | 207 |  | 220
Staff costs |  | 3,901 |  | 3,716 |  | 3,676
​ | ​ | ​ | ​ | ​ | ​ | ​
Premises and equipment |  | 1,153 |  | 1,112 |  | 1,133
UK bank levy |  | 109 |  | 101 |  | 99
Depreciation and amortisation (1,2) |  | 934 |  | 833 |  | 923
Other administrative expenses (3) |  | 1,899 |  | 1,925 |  | 1,927
Administrative expenses |  | 4,095 |  | 3,971 |  | 4,082
​ | ​ | 7,996 | ​ | 7,687 | ​ | 7,758
​ (1)Includes depreciation of right of use assets of £104 million (2022 - £119 million; 2021 - £167 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. 3 Operating expenses continued The average number of persons employed, rounded to the nearest hundred, during the year, excluding temporary staff,was 61,500 (2022 - 60,000; 2021- 59,200). The average number of temporary employees during 2023 was 2,100 (2022 - 2,500; 2021 - 2,500). The number of persons employed at 31 December, excluding temporary staff, by reportable segment, was as follows: ​
​ | ​ | ​ | ​ | ​ | ​ | ​
Continuing operations |  | 2023 |  | 2022 (1) |  | 2021 (1)
Retail Banking |  | 14,300 |  | 15,100 |  | 16,000
Private Banking |  | 2,400 |  | 2,300 |  | 2,000
Commercial & Institutional |  | 12,400 |  | 12,200 |  | 11,700
Central items & other (2) |  | 32,500 |  | 31,400 |  | 28,100
Total |  | 61,600 |  | 61,000 |  | 57,800
​ | ​ | ​ | ​ | ​ | ​ | ​
UK |  | 41,500 |  | 41,200 |  | 40,600
USA |  | 300 |  | 300 |  | 300
India |  | 16,900 |  | 15,700 |  | 13,500
Poland | ​ | 1,500 | ​ | 1,500 | ​ | 1,400
Republic of Ireland | ​ | 400 | ​ | 1,400 | ​ | 1,200
Rest of the World |  | 1,000 |  | 900 |  | 800
Total |  | 61,600 |  | 61,000 |  | 57,800
​
(1) | Comparatives have been re-presented to reflect the movement of headcount across segments due to segment reorganisation.
(2) | Central items & other includes Ulster Bank RoI. The total number of persons employed in Ulster Bank RoI of 500 (2022 – 2,200; 2021 – 2,400) includes nil people employed in discontinued operations at 31 December 2023 (2022 – 400; 2021 – 700).
​ 3 Operating expenses continued Share-based payments
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
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 | ​ | 2024 to 2028
Deferred performance awards | ​ | All | ​ | Awards of ordinary shares and conditional shares | ​ | Continuing employment or leavers in certain circumstances | ​ | 2024 to 2031
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-vesting assessment and underpins | ​ | 2024 to 2030
​
(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 for new awards and members as at 31 December 2022. The scheme has been replaced by a new Restricted share plan scheme with similar granting and vesting conditions.
​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Sharesave | ​ | 2023 | ​ | 2022 | ​ | 2021
​ |  | Average |  | Shares |  | Average |  | Shares |  | Average |  | Shares
​ | ​ | exercise price | ​ | under option | ​ | exercise price | ​ | under option | ​ | exercise price | ​ | under option
​ | ​ | £ | ​ | (million) | ​ | £ | ​ | (million) | ​ | £ | ​ | (million)
At 1 January |  | 1.63 |  | 99 |  | 1.61 |  | 95 |  | 1.64 |  | 96
Granted |  | 1.42 |  | 43 |  | 1.86 |  | 25 |  | 1.80 |  | 24
Exercised |  | 1.44 |  | (23) |  | 1.88 |  | (15) |  | 1.76 |  | (10)
Cancelled |  | 1.72 |  | (5) |  | 1.60 |  | (6) |  | 2.02 |  | (15)
At 31 December |  | 1.59 |  | 114 |  | 1.63 |  | 99 |  | 1.61 |  | 95
​ The fair value of Sharesave options granted in 2023 was determined using a pricing model that included: expected volatility of share price determined at the grant date based on historical share price 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 133 (exhibit 15.2) are used. The fair value of the award is recognised as services are provided by employees over the vesting period. ​ Options are exercisable within six months of vesting; 19.0 million options were exercisable at 31 December 2023 (2022 – 5.1 million; 2021 – 6.0 million). The weighted average share price at the date of exercise of options was £2.20 (2022 - £2.59; 2021 - £2.19). At 31 December 2023, exercise prices ranged from £1.12 to £1.89 (2022 - £1.12 to £2.27; 2021 - £1.12 to £2.27) and the remaining average contractual life was 2.25 years (2022 – 2 years; 2021 – 2.1 years). The fair value of options granted in 2023 was £27.3 million (2022 - £22.1 million; 2021 - £17 million). ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Deferred performance awards | ​ | 2023 | ​ | 2022 | ​ | 2021
​ |  | Value at |  | Shares |  | Value at |  | Shares |  | Value at |  | Shares
​ | ​ | grant | ​ | awarded | ​ | grant | ​ | awarded | ​ | grant | ​ | awarded
​ | ​ | £m | ​ | (million) | ​ | £m | ​ | (million) | ​ | £m | ​ | (million)
At 1 January |  | 93 |  | 46 |  | 132 |  | 65 |  | 169 |  | 77
Granted |  | 52 |  | 20 |  | 46 |  | 20 |  | 61 |  | 32
Forfeited |  | (2) |  | (1) |  | (4) |  | (2) |  | (10) |  | (5)
Vested |  | (67) |  | (30) |  | (81) |  | (37) |  | (88) |  | (39)
At 31 December |  | 76 |  | 35 |  | 93 |  | 46 |  | 132 |  | 65
​ ​ 3 Operating expenses continued The awards granted in 2023 vest in equal tranches on the anniversary of the award, predominantly over three years. ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Long-term incentives | ​ | 2023 | ​ | 2022 | ​ | 2021
​ |  | Value at |  | Shares |  | Value at |  | Shares |  | Value at |  | Shares
​ | ​ | grant | ​ | awarded | ​ | grant | ​ | awarded | ​ | grant | ​ | awarded
​ | ​ | £m | ​ | (million) | ​ | £m | ​ | (million) | ​ | £m | ​ | (million)
At 1 January |  | 49 |  | 23 |  | 44 |  | 21 |  | 50 |  | 24
Granted |  | 11 |  | 5 |  | 16 |  | 7 |  | 6 |  | 3
Vested/exercised |  | (10) |  | (4) |  | (10) |  | (4) |  | (12) |  | (6)
Lapsed |  | (1) |  | (1) |  | (1) |  | (1) |  | — |  | —
At 31 December |  | 49 |  | 23 |  | 49 |  | 23 |  | 44 |  | 21
​ The market value of awards vested/exercised in 2023 was £9.5 million (2022 - £11.7 million; 2021 - £13 million). ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Bonus awards | ​ | 2023 | ​ | 2022 | ​ | Change |
​ |  | £m |  | £m |  | % |
Non-deferred cash awards (1) | ​ | 43 | ​ | 40 | ​ | 8 | %
Deferred cash awards |  | 262 |  | 270 |  | (3) | %
Deferred share awards |  | 51 |  | 60 |  | (15) | %
Total deferred bonus awards |  | 313 |  | 330 |  | (5) | %
Total bonus awards (2) |  | 356 |  | 370 |  | (4) | %
Bonus awards as a % of operating profit before tax (3) |  | 5 | % | 7 | % | ​ | ​
Proportion of bonus awards that are deferred |  | 88 | % | 89 | % | ​ | ​
- deferred cash awards |  | 84 | % | 82 | % | ​ | ​
- deferred share awards |  | 16 | % | 18 | % | ​ | ​
​
(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 income statement charge for bonus awards.
​ Reconciliation of bonus awards to income statement charge ​
​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | 2023 |  | 2022 |  | 2021
​ | ​ | £m | ​ | £m | ​ | £m
Bonus awarded |  | 356 |  | 370 |  | 301
Less: deferral of charge for amounts awarded for current year |  | (114) |  | (127) |  | (99)
Income statement charge for amounts awarded in current year |  | 242 |  | 243 |  | 202
​ | ​ | ​ | ​ | ​ | ​ | ​
Add: current year charge for amounts deferred from prior years |  | 115 |  | 94 |  | 80
Less: forfeiture of amounts deferred from prior years |  | (4) |  | (3) |  | (15)
Income statement charge for amounts deferred from prior years |  | 111 |  | 91 |  | 65
Income statement charge for bonus awards (2) |  | 353 |  | 334 |  | 267
​ ​ 3 Operating expenses continued Year in which income statement charge is expected to be taken for deferred bonus awards ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Actual | ​ | Expected
​ |  | ​ |  | ​ |  | ​ |  | ​ |  | 2025
​ | ​ | 2021 | ​ | 2022 | ​ | 2023 | ​ | 2024 | ​ | and beyond
​ | ​ | £m | ​ | £m | ​ | £m | ​ | £m | ​ | £m
Bonus awards deferred from 2021 and earlier |  | 80 |  | 94 |  | 16 | ​ | 7 | ​ | 5
Bonus awards deferred from 2022 | ​ | — | ​ | — | ​ | 99 | ​ | 9 | ​ | 9
Less: forfeiture of amounts deferred from prior years |  | (15) |  | (3) |  | (4) | ​ | — | ​ | —
Bonus awards for 2023 deferred |  | — |  | — |  | — | ​ | 98 | ​ | 16
​ |  | 65 |  | 91 |  | 111 | ​ | 114 | ​ | 30
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