2018 has been a year of positive strategic and financial performance for the Group. Strong progress towards our external financial targets has been made, with profit before tax* (PBT) up £953m (20%) from 2017 to £5,701m. Group return on tangible equity** (RoTE) is 8.5%, up 2.9% points on prior year and on track to achieve our targets for 2019 and 2020. Our Common Equity Tier 1 (CET1) ratio is 13.2%, at the end-state target range of c.13%.
It has also been another year of successful execution against our strategy. This included the stand-up of the UK ring-fenced bank, full regulatory deconsolidation of Barclays Africa Group Limited (BAGL), and the conclusion of a number of significant legacy litigation and conduct matters.
The Committee shares the disappointment that this positive performance has not yet translated into share price performance, as macroeconomic factors continue to weigh heavily on investor sentiment. In determining the appropriate pay outcomes for 2018, we have taken a balanced view of performance, reflecting both the significant progress made during the year and the foundations laid for further and sustainable future improvements. It is important for the Committee to recognise these positive steps in performance, ensuring that Barclays continues to be able to attract and retain the talent needed to deliver our strategy and returns to our shareholders.
The Committee has approved a Group incentive pool of £1,649m, up 9% from 2017, against a PBT* increase of 20%. This pool change is the first increase in our incentive pool since 2013. Since 2010, our incentive pool is down 53%. This trend means that in some areas of the Bank, pay is now positioned behind our peers when adjusted for performance. A small part of the increase in the incentive pool is intended to ensure that we continue to align pay with performance and retain high performing talent in key business areas.
The increase also reflects some strategic hiring into key areas as well as an increase in permanent staff headcount, as we reduce outsourcing and third party arrangements in favour of building internal capability in line with our technology strategy to deliver ongoing cost efficiencies and retain intellectual property for the Group.
The Committee reviews key compensation ratios as part of its decision making on the pool, for example the Group compensation to net income ratio*, which continues to improve, down year on year from 38.0% to 36.6%. The ratio of Group staff costs to income*** also reduced from 40.6% in 2017 to 40.2%, demonstrating the effectiveness of the insourcing strategy in reducing overall staff costs.
The total incentive pool incorporates appropriate adjustments for risk and conduct matters, reflecting the ongoing seriousness with which the Committee views these issues.
*Excluding litigation and conduct.
** Excluding litigation and conduct. The prior year excludes litigation and conduct, Deferred Tax Asset remeasurement and the loss on the sale of 33.7% of BAGL’s issued share capital and the impairment of Barclays’ holding in BAGL.
*** Basis aligned with disclosure in the Results Announcement.