Notes to the policy table.

Notes to the policy table.

AREA

COMMENTARY

 

 

 

SHAREHOLDING GUIDELINES

To create alignment with shareholders, the Remuneration Committee also operates a shareholding guideline for executive directors. For 2014 this is 300% of base salary for the Group chief executive and 200% of base salary for other executive directors. Further details of this are set out in the annual report on remuneration.

DEFERRED SHARE ELEMENT

The deferred share element of the annual variable pay plan and the performance share plan shall be operated in accordance with the rules of the respective plans. The rules for the performance share plan have been set out for approval at the 2014 AGM.

LOSS OF OFFICE

The Remuneration Committee reserves the right to make any remuneration payments and payments for loss of office notwithstanding that they are not in line with the policy where the terms of the payment were agreed: (i) before the policy came into effect or (ii) at a time when the relevant individual was not a director of the company and the payment was not in consideration for the individual becoming a director of the company (this includes, but is not limited to, awards made to the CEO LGIM under the LGIM long term incentive plan, which are subject to the achievement of LGIM cumulative profit before tax targets measured over a three-year performance period).

MINOR AMENDMENTS

The Remuneration Committee will follow any statutory requirements when operating the policy. The Remuneration Committee may make minor amendments to the policy for regulatory or statutory requirements, exchange control or administrative purposes.

CHANGES TO THE POLICY OPERATED IN 2013

The key changes to the policy operated during 2013 and that intended to be operated going forward are detailed in the letter from the chairman of the Remuneration Committee.

LEGACY ARRANGEMENTS

Deferred bonus – Existing deferrals will continue to operate in line with the previous policy, where 37.5% of any bonus earned was deferred, and cliff vests after three years. Dividends are paid during the holding period.

PSP – Awards granted to executive directors under the previous PSP which are currently outstanding are subject to the achievement of relative total shareholder return performance conditions over separate three-year performance periods. The Remuneration Committee only has discretion to adjust downwards the final level of vesting of these awards if it does not consider it to be reflective of the underlying financial performance of the Group. Awards under this plan were made as nil cost options and remain exercisable for a period of two years following vesting.

Awards made under the share bonus plan (SBP) – Awards granted to executive directors under the SBP which are currently outstanding will continue to vest in line with the arrangements made. These include the award made to Mark Zinkula upon his appointment to CEO LGIM and prior to him joining the Board.

LGIM LTIP
In March 2007 the Committee approved the introduction of a specific long-term incentive plan for LGIM senior executives. In March 2011 and March 2012 Mark Zinkula was granted LGIM LTIP awards as part of his remuneration as CEO LGIMA and CEO LGIM. Under the LGIM LTIP annual awards of notional shares in LGIM are granted to participants. The vesting of these notional shares is subject to the satisfaction of the cumulative growth in PBT over the three year performance period. The value of the notional LGIM shares is delivered in cash after the end of the three-year performance period. These awards will continue to vest after their respective three year performance periods and to the extent that the performance conditions are met. No further awards under this plan have been made to Mark since he was appointed as an executive director.

In line with our mobility policy and the commitments made to Mark Zinkula on relocation from the US (prior to his appointment to the Board) he remains in certain US benefits and has relocation assistance. He would also receive repatriation assistance in the event of him returning to the US.

PERFORMANCE MEASURES AND TARGETS

The performance conditions for the AVP and the PSP have been chosen by the Committee to align with the Group’s strategic priorities and are the key performance indicators in relation to the operation of the business.

The following table sets out why the performance measures that are used for the incentive arrangements were chosen:

Plan

Measure

Rationale

 

AVP

 

 

Financial measures

To ensure company growth and return to shareholders

 

 

Strategic and personal measure

To safeguard the future of the company by, for instance, focusing on the development of future income streams and to ensure, for example, positive customer outcomes and employee engagement

 

PSP

 

 

Earnings measures

To incentivise growth in earnings

 

 

Capital efficiency measures

To ensure capital is used in a disciplined way and to steadily progress dividends

 

 

Shareholder return measures

To deliver a good return on equity for shareholders

 

The performance measures for the AVP and the PSP are reviewed and set annually to ensure they remain appropriately stretching and aligned to the business and its strategy.

Targets for the AVP are set taking into account internal forecasts of performance, market expectations and prior year performance. The targets for the AVP are set such that on-target normally equates to the levels forecast in the strategic plan for the year in question and maximum is set above that, at a level that is still within the company’s risk appetite.

The PSP targets are set by the Committee taking into account a number of considerations including: what is felt to be achievable over a sustained period of time; internal forecasts of performance; any guidance provided to the market; market expectations; prior year performance; and the company’s agreed risk appetite.

MALUS/CLAWBACK

For future awards, the Committee has an agreed policy which applies to deferred annual variable pay awards and long-term incentive awards made to executive directors.

The Committee may apply Malus (i.e. reduce the number of shares in respect of which an award vests, or delay such vesting, or impose additional vesting conditions) in the event of financial mis-statement, personal misconduct, failure of risk management, reputational damage or other exceptional circumstances identified by the Committee. The Committee may also, in exceptional circumstances, claw back share awards which have already been released to individuals, if it considers it appropriate to do so having regard to such factors as it deems relevant – such as the likelihood of recovery, any loss suffered, and the link between the award and the event. (Clawback will normally only apply within 4 years of the end of the relevant performance period.)

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