Annual variable pay (AVP).

Annual variable pay (AVP).

ELEMENT

POLICY

Note: Details on AVP decisions for performance in relation to 2013 can be found in the annual report on remuneration.

PURPOSE AND LINK TO STRATEGY

Incentivise executive directors to achieve specific Group and/or divisional, financial, strategic and personal predetermined goals, within the Group’s risk appetite and taking into consideration the company’s culture and values, on an annual basis.

The deferred proportion of AVP into shares reinforces retention and enhances alignment with shareholders by encouraging a longer term focus and risk alignment.

OPERATION

Performance targets and weightings are set annually by the Committee to ensure they are appropriately stretching.

Performance is normally assessed over a one year period.

AVP out-turns are determined by the Committee after the year end, taking into consideration performance against targets, the underlying performance of the business and individual performance. The Committee may exceptionally adjust the outcome of the AVP calculation if it believes there are underlying circumstances that justify such a change.

50% of any AVP awarded is deferred. Deferred awards are normally awarded in the form of restricted shares or nil-cost options or phantom equivalent if appropriate. However awards may be deferred in other forms dependent upon business or regulatory requirements.

Deferred awards will vest after a period set by the Committee. This period will normally be three years.

Dividends on future deferred awards made in the form of shares accrue during the deferral period and normally are paid in the form of shares to the executive directors upon vesting. Dividend equivalents may accrue on awards made in other forms.

Deferred awards are subject to Malus. Clawback provisions also apply (further details are set out later in this report in the Notes to the policy table section).

The Committee may adjust and amend the awards in accordance with the rules, for example where there is a variation in the share capital or to settle the awards in cash in the event this is warranted.

OPPORTUNITY

The maximum award opportunity in respect of any financial year is based on role as follows:
For the Group chief executive, CFO and CEO LGAS the maximum potential is 150% of base salary.
For the CEO LGIM the maximum potential is 175% of base salary.

The award opportunity at threshold performance is 0%, with up to 75% of base salary normally payable for target performance for the Group chief executive, CFO and CEO LGAS and up to 105% of base salary payable for target performance for the CEO LGIM.

PERFORMANCE

Performance measures are selected by the Remuneration Committee on an annual basis to ensure that they are aligned with the Group’s strategic priorities and the delivery of sustainable shareholder value.

Performance is measured based on an appropriate mix of Group and/or Divisional financial performance targets as well as strategic (including customer and employee measures) and personal measures.

Performance measures are weighted with normally up to 80% based on financial targets. The split between financial, strategic and personal performance measures and the relative weighting of Group and Divisional performance targets will be kept under review by the Committee on an annual basis.

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