The remuneration of the [Group]’s executive directors comprises salary, participation in an annual bonus plan (paid partly in cash and partly in deferred shares) and the Group’s Performance Share Plan (PSP), which is a long term incentive plan, plus pension and ancillary benefits. The variable elements of pay (for executive directors being the annual bonus plan and PSP) are designed to generate a strong alignment of interest between the individual and the shareholders through providing rewards which are linked to the generation of superior returns to shareholders and strong financial performance. The Company is committed to treating customers fairly and having appropriate risk safeguards and these are also reflected appropriately in bonus objectives. The chart illustrates that a significant proportion of both target and stretch pay is performance-related.
Relative split of Salary, Bonus and PSP for Executive Directors at target and stretch performance for 2008 (%)
When setting remuneration the Committee takes into account the market sector, function, job size, and individual and Company performance. Data is obtained from a variety of independent sources (including HNBS, Watson Wyatt and Monks Partnership, which is part of PricewaterhouseCoopers, our auditors). Where possible, the practice is to use at least two independent sources of information for each individual role. The remuneration policy for executive directors is to pay at or around the relevant mid-market level. The market against which the remuneration for the executive directors is measured is primarily the [FTSE] 100, with special reference to companies in the UK financial services sector.
Summary of Key Features of Executive Directors’ Remuneration in 2008
|
Element of remuneration package |
Purpose |
Policy |
Summary of how it operates |
|
Base Salary |
- Help recruit and retain key employees
- Reflect the individual’s experience and role within the Group.
|
- To pay at around the mid-market level relative to the FTSE 100, with particular regard to other relevant financial institutions
- Regard given to individual skills and experience
- In specific circumstances (for example, a new appointment) may set salaries below mid-market, with a view to reaching mid-market level within two to three years.
|
- Paid monthly in cash
- Normally reviewed by the Committee annually and fixed for the 12 months commencing 1 January
- Salary is supplemented with normal benefits available to Legal & General senior managers including car allowance and medical insurance. Legal & General products can be acquired by executive directors on the terms available to other members of staff
- For 2009, no salary increases will be awarded to executive directors.
|
|
Annual Bonus |
- Incentivise executives to achieve specific, predetermined goals during a one-year period
- Reward ongoing stewardship and contribution to core values
- Deferred element, awarded in shares, provides a retention element.
|
- Maximum bonus potential set by reference to market comparators (currently 125% of base salary)
- On-target bonus of 75% of base salary (60% of maximum) for all executive directors
- Percentage of bonus deferred and awarded in shares.
|
- All executive directors have objectives related to Group key performance indicators (KPIs), plus individual (where relevant) divisional and strategic targets
- Bonus result determined by the Committee after year end, based on performance against targets
- Normally, 62.5% of the bonus paid in cash and 37.5% paid in deferred shares to be held for three years
- From 2009, deferred element may be subject to forfeiture if the performance which led to a bonus being paid is found to be incorrect
- For 2008, no bonuses were awarded.
|
|
Performance Share Plan |
- Incentivise executives to achieve superior returns to shareholders
- Align interests of executives and shareholders through building a shareholding
- Retain key executives over three-year performance period.
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- Awards of nil cost shares made annually, with vesting conditional on relative Total Shareholder Return (TSR) measured over the three subsequent years
- Executive directors normally receive annual grants of 200% of salary
- For 2009, awards to executive directors have been set at 150% of salary.
|
- Vesting condition for half of the award measures the Group’s [TSR] versus the FTSE 100. Vesting condition for the other half measures TSR versus the insurance constituents of the Euro Top 300 plus any [FTSE] 350 Life Insurance companies not in the Euro Top 300
- The two conditions are measured independently
- The awards will vest in full if Legal & General is ranked at or above the 20th percentile. One quarter of awards will vest if TSR is at median. No awards vest below median
- The Remuneration Committee will also assess whether the TSR out-turn is reflective of the underlying financial performance of the Company and, in exceptional cases, may scale back vesting.
|
|
Pension |
- Reward sustained contribution.
|
- Provide competitive post-retirement benefits
- No compensation for public policy or tax changes.
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- Participation in a Group pension scheme
- Accrue benefits according to length of service up to retirement
- From 2009, pensionable salary for the defined benefit pension plan will be limited to a maximum increase of 2.5% each year
- Cash alternative for executive directors opting for enhanced protection above the Lifetime Allowance.
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Share Ownership Guidelines |
- To align the interests of executive directors and shareholders.
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- The Group Chief Executive is required to build and maintain a shareholding of 200% of base salary and, for other executive directors, 100% of base salary.
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- Executives are expected to build a shareholding through the vesting of shares under the Group’s share incentive plans. Existing shareholdings and shares acquired in the market are also taken into account.
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