Statement of implementation of remuneration policy in the following financial year.

Statement of implementation of remuneration policy in the following financial year.

SALARY INCREASES FOR 2014

As outlined in the Chairman of the Remuneration Committee’s letter, the executive directors (excluding Nigel Wilson) received an interim salary adjustment during 2013 to recognise their increased responsibilities. Mark Gregory’s, John Pollock’s and Mark Zinkula’s base salaries were increased to £560,000 pa with effect from 1 July 2013 when they officially took on their expanded roles.

As a result of this, there are no further increases to their salaries for 2014 and their next review will be in March 2015.

Nigel Wilson

In line with our policy of setting base salary at a level to allow a newly appointed executive director to progress into the role, Nigel’s salary was set at £750,000 pa when he was appointed to Group chief executive on 1 July 2012. This was some £70,000 below the salary of the departing incumbent. It was agreed that Nigel’s next salary review would be March 2014, 20 months after he assumed the position.

In line with our policy therefore, the Committee has decided to increase Nigel’s salary to £820,000 pa with effect from 1 March 2014. It is felt that this level reflects what he has achieved to date in terms of financial results (see Highlights for 2013 section), increased strategic clarity and the energy, focus and drive within the organisation. His next review will be in March 2015.

BENEFITS FOR 2014

Benefits for 2014 will continue to be in line with our policy.

The table below summarises these changes.

(XLS:) Benefits for 2014

Name

Salary at 31 December 2013

Salary with effect from 1 March 2014

% increase from December 2013

Next intended review date

Nigel Wilson

£750,000 (effective 30 June 2012)

£820,000 pa

9.3%

March 2015

John Pollock

£560,000 (effective 1 July 2013)

£560,000 pa

0%

March 2015

Mark Gregory

£560,000 (effective 1 July 2013)

£560,000 pa

0%

March 2015

Mark Zinkula

£560,000 (effective 1 July 2013)

£560,000 pa

0%

March 2015

ANNUAL VARIABLE PAY POTENTIAL (AVP) 2014

For 2014, in line with our proposed remuneration policy, the AVP potential for executive directors will be as follows:

(XLS:) Annual variable pay potential (AVP) 2014

Position

Maximum potential

£000 value maximum potential

New AVP on target

New AVP on target £000

Group chief executive

150% of base salary as at 1 March 2014

1,230

75% of salary as at 1 March 2014

615

CFO, CEO LGAS

150% of base salary as at 1 March 2014

840

75% of salary as at 1 March 2014

420

CEO LGIM

175% of base salary as at 1 March 2014

980

105% of salary as at 1 March 2014

588

Performance Targets and Weightings

The performance targets and weightings for 2014 are shown in the table below

(XLS:) Performance targets and weightings

Name

Group KPIs

Divisional / Financial KPIs

Strategic objectives

Nigel Wilson

80%

20%

John Pollock

50%

30%

20%

Mark Gregory

80%

20%

Mark Zinkula

50%

30%

20%

 

E.g. Operating Profit, Operating Cash, Net Cash, ROE, EPS

E.g. PBT, Operating Cash, Net Cash, GWP, Gross / Net New Business, Revenues and Expenses

E.g. Building a diversified and sustainable business, Customer outcomes, risk management, improving products and services, CSR, employee engagement.

The actual performance targets for 2014 are considered commercially sensitive and therefore will be considered for disclosure retrospectively.

PERFORMANCE SHARE PLAN (PSP) 2014

Subject to shareholder approval, it is the Committee’s intention to award a PSP potential of 250% of 2014 base salaries to the executive directors after the 2014 AGM.

Performance period

The performance period will be three financial years from 1 January 2014.

Release

To the extent that the award vests, it will be available for exercise as soon as practicable in equal tranches of one third at the end of the 3rd, 4th and 5th years from the commencement date of the performance period (as described in the remuneration policy).

Due to the change in how the performance period is measured (i.e. it is moving from April to April to a performance period of January to December to coincide with the financial year) and release timing of the new PSP, there is the possibility that two PSPs may vest in the same year in 2016 (that granted under the legacy plan in 2013 and that granted in 2014 under the new plan). This is a one-time situation.

Quantum

The details of the award are shown below: The awards will be made as nil cost options.

(XLS:) Quantum awards

Name

2014 award as % of March 2014 base salary

Face value of maximum potential award £000

Face Value of threshold level of award (15% of total award or 37.5% of base salary) £000

Nigel Wilson

250%

2,050

308

John Pollock

250%

1,400

210

Mark Gregory

250%

1,400

210

Mark Zinkula

250%

1,400

210

The above represents the maximum award that may vest. However, some, all or no awards may vest, dependent on performance conditions being met.

Approach to performance measures for 2014

The Committee gave careful consideration to the selection of the combination of measures for our 2014 PSP awards. The Committee has chosen measures which it believes directly support the company’s strategy of achieving growth which is steady, sustainable and rewarding for shareholders, within our agreed risk appetite. These are:

Relative TSR

Ensures participants are aligned with the shareholder experience.

EPS growth % p.a.

Provides direct line of sight for executive directors, and will incentivise them to steadily grow earnings over time.

DPS growth % p.a.

The dividend is set by the Board as a whole (on which the majority of members are non-executives), so this measure reflects: the competing demands of capital retention versus distribution to shareholders, the sustainability of dividend policy, and provides an absolute rather than a relative measure of the dividend progression experienced by shareholders.

 

In addition, the EPS/DPS growth metrics are supported by a capital efficiency measure in the form of an ROE underpin.

Performance measures

In line with our remuneration policy, we set out below the metrics that will be used for the 2014 award:

  • 25% on TSR relative to the FTSE 100
  • 25% on TSR relative to a bespoke group of insurers (for the 2014 award this group comprises the insurance constituents in the FTSEurofirst 300 plus any FTSE 350 Life Insurance companies not in the FTSEurofirst 300 and the five US firms Metlife, Prudential Financial, Ameriprise Financial, Principal Financial and Lincoln National).
  • 50% on a financial matrix of Earnings Per Share and Dividends Per Share growth % p.a. A Return on Equity underpin also applies to this element.

Vesting

Relative TSR

For the relative TSR element (50% of the award for 2014), the awards will vest following a three-year performance period as follows:

Legal & General’s TSR performance relative to the comparator groups

(XLS:) Legal & General’s TSR performance relative to the comparator groups

 

% of award that vests

Below median

0%

Median (threshold)

15%

Between median and 80th percentile

15% – 100%

80th percentile or above

100%

Financial measures

The remainder of the award will be based on Legal & General’s performance against an EPS and DPS matrix. Threshold vesting begins at 5% growth p.a. for both EPS and DPS. In addition, there is an ROE underpin such that mean ROE must be at least 12% over the three year performance period for 2014 awards. We will disclose the performance target ranges at the time of grant which will occur after our new PSP is approved at the AGM.

Assessment of performance

At the end of the three-year performance period the Committee will critically assess whether the formulaic vesting outcome produced by the matrix is justified. To do this the Committee will look at a number of factors including: whether the result is reflective of underlying performance and has been achieved within the company’s agreed risk appetite; the quality of earnings; and the nature of any changes in leverage, key assumptions, dividend cover and behaviours etc. If such considerations mean that the formulaic outcome of the vesting schedule is not felt to be justified, then the Committee can exercise downwards discretion. The Committee will continue to responsibly exercise any scope for discretion/judgement, and is happy to be judged on its performance in this respect through the annual advisory vote.

NON-EXECUTIVE DIRECTOR (NED) FEES FOR 2014

There is no change to our NED fee structure as set out in the policy for 2014.

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