TERMS OF REFERENCE
The Committee’s Terms of Reference are available on our website or on request. The remit of the Committee embraces the framework of the remuneration strategy and policy for the whole company as well as the executive directors. The Committee particularly focuses on:
- determining the individual remuneration for executive directors and for other designated individuals or for those who are discharging a Head of Control function;
- undertaking direct oversight on the remuneration of other high earners in the Group;
- undertaking oversight on an exceptions basis on the remuneration of Code staff and employees in the Control and oversight functions; and
- determining the framework of the remuneration policy for all other employees in the Group.
The Committee retains the ability to exercise powers under the share plans to claw back or reduce awards where it determines there has been fraud or malice or a breach of Group risk appetite.
MEETINGS IN 2013
The Committee normally meets at least three times per year. During 2013 it formally met eight times as well as having ongoing dialogue via email or telephone discussion. The additional meetings were principally held to discuss the following key issues:
- The appointment of Mark Gregory to Chief Financial Officer with effect from 1 July 2013 and the re-organisation of the business resulting in wider responsibilities for John Pollock and Mark Zinkula: see Chairman of the Remuneration Committee’s letter.
- The review of the executive directors’ remuneration structure (see Chairman of the Remuneration Committee’s letter).
Regular meetings were held to review and discuss bonus awards in relation to performance in 2012, base salary adjustments for 2013 and budgets for the company 2014 pay review.
Details of the Remuneration Committee members can be found in the Remuneration Committee section. Details of the independent advisers to the committee can be found in the next section.
ADVISERS TO THE REMUNERATION COMMITTEE
Kepler Associates Partnership LLP continued to be the independent advisers to the Remuneration Committee until October 2013. Kepler is also engaged to provide updated forecasts of the PSP vesting. This work has not been felt to be in conflict with the independence and objectivity of the work carried out for the Committee.
In October 2013, the Committee appointed Deloitte LLP to replace Kepler Associates as their independent advisers. As a full RFP had been carried out within the last 18 months, it was felt unnecessary to re-tender in the market place. The Committee principally moved to ensure continuity of advice and approach regarding their lead adviser and to benefit from the wider reach and resources that Deloitte could provide. Deloitte also provide the company with international tax advice and other advisory services. In addition, Deloitte provided specialist assistance with one-time projects involving claims handling and systems development. This work was commissioned prior to Deloitte becoming advisers to the committee. This work is carried out by an entirely separate group within Deloitte and has not been felt to be in conflict with the independence, and objectivity of the work carried out for the Committee.
Both Kepler Associates and Deloitte are signatories to the Remuneration Consultants’ Group Code of Conduct in relation to Executive Remuneration Consulting in the UK.
During 2013, Kepler Associates and Deloitte have principally assisted the Committee with the review of the overall executive directors’ remuneration structure.
The total fees from the independent advisers for 2013 in relation to Remuneration Committee work were £287K (£198k for Kepler and £89k for Deloitte) including VAT. While fee estimates are required for bespoke pieces of work , fees are generally charged based on time with hourly rates in line with the level of expertise and seniority of the adviser concerned.
ENGAGEMENT WITH SHAREHOLDERS
The Committee seeks to maintain an active and productive dialogue with investors on developments in the remuneration aspects of corporate governance generally and any changes to the company’s executive pay arrangements in particular. More details can be found in the policy report under the ‘Statement of consideration of shareholder views’.
The Bonus Steering Committee (BSC) and the Group Regulatory Risk and Compliance Function make a key contribution to the process of designing reward structures and evaluating whether achievement of objectives and any payment from plans have taken into account the overall risk profile of the company.
BONUS STEERING COMMITTEE
Reporting to the Remuneration Committee, the BSC helps set the framework within which our incentive arrangements are normally reviewed and implemented, with a view to supporting business strategy, whilst acting within risk appetite.
The members of the BSC include the Group HR director and Group head of reward as well as the Group remuneration team, business heads of HR, the Chief Risk Officer (CRO) and the Group director of regulatory risk and compliance.
Where a business unit tables a proposal for consideration, the relevant business manager is required to attend the BSC meeting to explain the background and to answer all questions and challenges from the BSC.
In response to the strong regulatory focus in 2013 on structured incentive arrangements for direct sales teams in particular, the BSC commissioned an external review of structured incentives. The findings were broadly positive with some areas for improvement highlighted, which have been, or are being, addressed.
GROUP REGULATORY RISK AND COMPLIANCE FUNCTION
The Remuneration Committee also works closely with the Group Regulatory Risk and Compliance Function with respect to remuneration proposals.
In particular the Function reports to the Committee on an annual basis on whether any risks have been taken outside of pre-agreed parameters, there have been regulatory breaches, or they are aware of any other considerations that may lead the Committee to consider whether it should impact the payment of bonuses to staff (including in particular the executive directors and Code Staff).
The CRO also specifically looks at the overall risk profile of the company and whether executive directors have achieved objectives within the company’s accepted risk appetite. The CRO also reviews the executive directors’ objectives for the forthcoming year to ensure they are in line with the risk parameters.
The directors’ report on remuneration has been prepared in accordance with the requirements of the Companies Act 2006 and Schedule 8 of the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2013. It also describes the Group’s compliance with the UK Corporate Governance Code in relation to remuneration. The company is an active member of the ABI and the Committee, consistent with its approach of operating within the highest standards of corporate governance, takes account of guidelines issued by the ABI and shareholder bodies (such as the NAPF) when setting the remuneration strategy for the company.