CHAIRMAN OF THE
I am pleased to present the Directors’ Report on Remuneration for 2011.
THANK YOU TO SIR DAVID WALKER
In starting my first report to shareholders, I would like to recognise my predecessor, Sir David Walker, and his very valued contribution to the Remuneration Committee over the past years. Sir David’s vast experience, ethics and attention to the highest levels of good governance have set a leading example. The Committee will work hard to maintain this standard.
OUR APPROACH TO REMUNERATION
Our core remuneration structure applies throughout the organisation and aims to fairly reward employees and recognise achievements. We define core remuneration as base salary, a bonus that is closely aligned to performance and other benefits such as pension, car allowance, health cover and life assurance. In addition, for the executive directors and Leadership Team (approximately 30 people) there is a long-term incentive plan based on [TSR].
CLEAR AND TRANSPARENT REPORTING
The Remuneration Committee contributed its views to the BIS consultation on Narrative Reporting and Executive Remuneration. We believe that our own remuneration structure is both transparent and straightforward and we continue to try and enhance the reporting within this Directors’ Remuneration Report which, we hope, will highlight our reward philosophy and summarise the key remuneration issues for 2011. The Committee will continue to contribute to the wider debate on defining best practice and will clearly have due regard to all developments during 2012 and beyond.
The Committee welcomes engagement with shareholders in order to share thoughts and clarify its remuneration approach. It is looking at ways to improve its interaction with shareholders in 2012.
LINK OF PERFORMANCE AND REWARD
The Company strongly believes in the relationship of performance to reward. Performance is measured both on achievement of objectives and on the way in which those objectives have been attained. This latter element has been introduced in 2011.
REVIEW OF EXECUTIVE DIRECTOR REMUNERATION STRUCTURE
During 2011, a full review was undertaken of the executive directors’ remuneration structure. We concluded that the overall structure remained sound but it was recognised that some elements were below mid-market ranges in relation to other FTSE 100 companies. However, given the uncertain economic environment and ongoing changes in regulatory requirements, it was felt inappropriate to make changes at this time, so the current structure will continue into 2012. However, the Committee will review the position again in 2012. The Group’s Performance Share Plan will expire in 2014 on its tenth anniversary, and shareholder consent will be sought for any replacement.
THE 2012 PAY REVIEW
This year has continued to see a challenging economic environment and volatile market conditions. However, the Company has succeeded in meeting or exceeding many areas of its plans. In setting its pay review budgets, the Company takes into consideration both the external market and Company performance. For 2012, UK core pay review budgets have been set at 2.25% for managers (2.6% in LGIM) and 3.0% for staff grades (3.2% in LGIM).
The Remuneration Committee takes into consideration the remuneration – base pay and bonus budgets – for employees below Board level when determining the remuneration for the executive directors.
The executive directors’ salaries have, therefore, been increased within the budget agreed for employees throughout the Company. An exception is Mark Gregory who joined the Board at a salary well below the mid-market range. As seen from the results in the section, Mark is making a significant contribution to the business and therefore, in recognition of this, his salary has risen in line with our policy of progression towards the mid-market range. Total pay increases for the executive directors, including Mark Gregory, total 2.16% (against a non LGIM management budget of 2.25%).
The annual executive directors’ bonus awards are assessed by a combination of financial results against key Group performance indicators and the achievement of personal and strategic objectives. Under the annual bonus plans, bonuses of between 61.69% and 91.69% of the maximum potential (125%) were awarded to executive directors (compared to 73% to 90% in 2010). Further details of how these awards were determined are set out in the section. The Committee considers this level of bonus to be appropriate in light of the strong results, for example increases over 2010 in operating profit, [net cash generation] and [EEV per share]. The Group’s [KPI] results are shown in the section.
After due consideration of Company performance and other factors, it was concluded that the appropriate level for awards under the Performance Share Plan (PSP) was 200% of salary for 2012.
ANNOUNCED PLANNED RETIREMENT OF GROUP CHIEF EXECUTIVE OFFICER TIM BREEDON
During 2011, Tim Breedon announced his intention to retire at or by the end of 2012. He will continue to be paid in line with our current remuneration policy and his existing contractual terms. The Company does not foresee any additions to this.
The Remuneration Committee extended its remit in 2011 to review individual pay and bonus decisions for those employees deemed to be Code staff or Control Functions under the FSA’s response to the Capital Requirements Directive (CRD3). Legal & General falls under the requirements of Tier 4. The aggregate remuneration for Code staff in relation to 2010 was reported on our during the year and will again be published on the internet for 2011.
NON-EXECUTIVE DIRECTORS’ (NEDS) FEES
The role and responsibilities of the NEDs were reviewed by the Board during 2011. Fees were last increased in 2008. The 2011 review maintains the base fee at £65,000. However, for those NEDs who sit on two or more committees, excluding the Nominations Committee, an additional fee of £10,000 pa will be paid. The fees of Committee Chairmen and the Senior Independent Director (SID) were also reviewed. The new fee structure is outlined in detail the section. A further change was to require the NEDs to hold the equivalent of one year’s base fee in Legal & General shares to be retained until the end of office.
CHAIRMAN OF THE REMUNERATION COMMITTEE